U.S. Steel Manufacturing: National Security and Tariffs

U.S. Steel Manufacturing: National Security and Tariffs

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August 12, 2021
U.S. Steel Manufacturing: National Security and Tariffs
Steel plays a significant role in national security and U.S.
in the United States. USGS notes that, at the end of 2020,
Department of Defense (DOD) operations. While the defense
two companies—U.S. Steel and Cleveland-Cliffs—operated
industry often integrates steel into components or structures
integrated steel mills at 11 U.S. locations.
of military platforms and weapon systems, it also has other
Minimills provide a second way to make steel. Minimills
applications associated with homeland security and critical
tend to have lower fixed capital and energy costs than
infrastructure. In recent years, some in Congress have come
integrated steel mills and a largely nonunion workforce. In
to view global overcapacity and excess production of steel,
2020, this method—which primarily uses recycled steel scrap
which has tended to result in a reliance on often cheaper
melted in an electric arc furnace—accounted for 70% of all
imported steel instead of domestically produced steel, as a
domestically produced raw steel. Over 50 companies,
potential threat to U.S. national security. These Members
including Nucor and Steel Dynamics (ranked as the nation’s
have advocated boosting U.S. steel production as a means of
first- and fourth-largest steel producers, respectively, in
ensuring a stable domestic supply for national security
2019), operate minimills in the United States. Since 2018,
purposes.
several minimill operators have announced or made new
Steel Tariffs under Section 232
investments, upgrades, or plant capacity expansions in the
The Trump Administration determined foreign-made steel
United States. Increased prices linked to the tariffs and
“threaten[ed] to impair national security” and imposed global
quotas on imported steel may be a factor in these decisions.
tariffs of 25% or quotas in March 2018 under Section 232 of
Figure 1. The Raw and Recycled Steel Making Process
the Trade Expansion Act of 1962. Congress delegated some
of its authority to regulate foreign commerce to the executive
branch through Section 232, a statute that allows a President
to restrict imports if Commerce finds the imports threaten or
impair U.S. national security. Observers, however, noted that
U.S. military applications have historically represented a
relatively small share of annual domestic steel production
(3% in 2020, according to the American Iron and Steel

Source: CRS adapted figure from AISI Profile 2019-2020, p. 10.
Institute (AISI), and raised concerns about the potential
negative impact of tariffs on U.S. defense allies.
U.S. steel production also includes slab converters (also
called re-rollers) that use a third, alternative manufacturing
The Biden Administration is reviewing whether to keep,
model. These companies purchase semi-finished steel slabs,
remove, or amend the existing tariff and quotas, which have
mostly from foreign suppliers, to use as feedstock to make
no statutory expiration; is working internationally on the
finished sheet steel products in the United States.
interrelated issues of global steel overcapacity and dumping;
and is tightening government procurement rules for steel.
Factors Affecting Domestic Production
Some Members of Congress support keeping the tariff
One longstanding concern for U.S. domestic producers is
protection in place, while others oppose the duty due to
global overcapacity, which the Organisation for Economic
increased input costs for downstream industries.
Co-operation and Development (OECD) estimated at around
Domestic Steel Manufacturing
700 million metric tons of steel in 2020. Global efforts to
U.S. steel manufacturing rose in 2018 and 2019; however, in
address this issue over many years have been largely
2020, the COVID-19 pandemic contributed to a drop in
unsuccessful. Chinese overcapacity is widely viewed in the
demand that affected production, resulting in shutdowns and
United States as a potential threat to U.S. domestic steel
idled or reduced steel making. As manufacturing has
production. Although China accounted for more than 55% of
recovered, U.S. production of steel has risen. Federal Reserve
worldwide steel production in 2020, about 2% of U.S.
Board data shows as of June 2021 monthly production rose
imports of steel mill products come directly from China due
58% from its low in May 2020. In 2020, U.S. annual
partly to existing U.S. antidumping and countervailing duties
production of raw steel fell to an estimated 72 million metric
on Chinese steel.
tons from 87.8 million metric tons in 2019, according to the
U.S. imports of steel originate largely from U.S. partners: In
United States Geological Survey (USGS).
2020, Canada was the biggest U.S. supplier of steel,
U.S. producers currently make steel in two main ways
measured in metric tons, followed by Brazil and Mexico.
(Figure 1). One way is in integrated steel mills that turn coal
Total import penetration dropped to a five-year low of 23.1%
into coke, combining the coke with iron ore to produce pig
of U.S. demand in 2020, from 33.8% in 2015, according to
iron, and then melting it in a basic oxygen furnace to produce
the U.S. Department of Commerce (Commerce).
steel. Many integrated steel mills have closed, partly because
The worldwide hot-rolled band steel price—a proxy for the
they are more expensive to operate than newer facilities. In
price of steel used in everything from microwave ovens to
2020, integrated mills produced 30% of total raw steel made
bridges—is at a decade high. The U.S. price of steel
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U.S. Steel Manufacturing: National Security and Tariffs
generally tends to be higher than that of comparable steel
reviewing the Section 232 tariff program, and has not
produced in other countries for a variety of reasons. From
announced plans to end the 25% steel tariff and quotas. The
January to June 2021, hot-rolled band steel in the United
Administration is working internationally to address the issue
States sold at an average of $1,460 per metric ton, over 60%
of global steel overcapacity.
higher than the global price and more than double China’s
The United States-Mexico-Canada Agreement (USMCA).
(Figure 2). Higher steel prices also affect U.S. downstream
The USMCA, in effect since July 1, 2020, also aims to
industries that use steel, or inputs made of steel, such as auto
support U.S. steel production. The USMCA requires 70%
parts, farm equipment, and armored military vehicles.
North American steel content for vehicles to qualify for duty-
Figure 2. Steel Prices
free treatment and for that steel to be melted and poured in
North America. This may increase demand for U.S.-made
steel over time.
Domestic Source Restrictions. Title 10 U.S.C. §2533b
permits the DOD to purchase products, such as missile
systems, and components made of certain steel alloys and
other specialty metals, only if the component metals are

melted and produced domestically, with some exceptions or
Source: World Steel Dynamics, Steelbenchmarker.
in certain “qualifying countries.” Recent Administrations
Notes: Prices do not include freight, insurance, handling, import duties
adopted policies to strengthen domestic sourcing of steel and
and other associated costs.
manufactured products that include steel. In January 2021,
U.S. demand for steel has been generally stagnant. Since
the Trump Administration modified acquisition regulations to
2010, the United States has consumed about 96 million
set a 95% U.S.-made threshold for products consisting
metric tons of steel annually, on average. Other materials,
“wholly or predominately” of iron or steel, thus treating these
such as aluminum, have replaced steel in many uses. Imports
items differently from other manufactured products in
of products containing steel, such as appliances and motor
government purchases. For all other products and
vehicles, have increased and also offset U.S. demand.
construction materials, the Biden Administration proposed a
phased increase of required domestic content thresholds.
Over the past decade, production capacity of the U.S. steel
These thresholds would increase from 55% (as set in January
industry rarely has exceeded 80% utilization. In its 2018
2021 by the Trump Administration) to 60% upon
Section 232 report, Commerce argued that 80% or higher is
implementation, and would rise to 75% by 2029. These
necessary for the industry to sustain adequate profitability, to
requirements include exceptions.
reopen idled mills, and to boost U.S. steel production.
Capacity utilization rates at steel mills rose to 83.5% in June
The Defense Production Act (DPA; 50 U.S.C. §4533).
2021, after falling to 52.6% in May 2020, and slightly above
Congress provides the President with a broad set of
the pre-pandemic 83.4% rate of January 2020.
authorities under the DPA, including Title III, which
authorizes the use of economic incentives to secure domestic
Steel Industry Jobs and Wages
industrial capabilities essential to meet national defense and
In 2020, domestic steel producers directly employed 134,467
homeland security needs. DOD has funded several Title III
workers, accounting for 1.1% of the nation’s 12.1 million
projects to increase domestic production of steel products,
factory jobs. U.S. iron and steel mills paid an average wage
including a $56 million agreement for steel plate production
of $88,380 in 2020, higher than the average wage for all
signed in July 2020 with AcelorMittal, the world’s second-
manufacturing workers of $73,398. A large union workforce
largest steelmaker (in December 2020, ArcelorMittal sold
can affect industry wages, with union contracts covering
nearly all of its U.S. operations to Cleveland-Cliffs).
around a quarter of the nation’s steel workers in 2020. U.S.
Other Considerations. Some Members support bills to spur
steel manufacturers shed 12,500 jobs from 2015 to 2020.
U.S. production of steel for national security and economic
This may be due to factory idling and production reductions
competitiveness reasons. Others oppose federal policies to
and to industrial automation and related technologies.
shield domestic steel producers from global competition. In
Issues for Congress
the 117th Congress, one bill on Section 232 trade actions
would require the Secretary of Defense, not Commerce, to
Steel Tariffs and Quotas. In March 2018, the Trump
initiate these trade investigations (S. 746). Another measure
Administration, arguing U.S.-made steel is vital to national
supported by the steel industry would change antidumping
security, imposed a 25% tariff (or in some cases a quota) on
and countervailing duty laws (S. 1187). Other proposals
U.S. imports of certain steel products from almost all
would apply more domestic source requirements, especially
countries in addition to existing tariffs. In January 2020, it
to federally funded infrastructure projects. See also, CRS
broadened the 25% tariff to certain derivative steel products
Report R46748, The Buy American Act and Other Federal
(i.e., those containing a high percentage of steel). The Trump
Procurement Domestic Content Restrictions and CRS Report
Administration applied the tariffs and quotas under Section
R44266, Effects of Buy America on Transportation
232 of the Trade Expansion Act (19 U.S.C §1862, as
Infrastructure and U.S. Manufacturing.
amended). Groups representing steel manufacturers and the
Congressional Steel Caucus are urging President Biden to
Michaela D. Platzer, Specialist in Industrial Organization
keep the tariff in place. Steel converters and steel-consuming
and Business
industries, including the auto and appliance sectors, with
Rachel F. Fefer, Analyst in International Trade and
concerns about increased production costs, are seeking an
Finance
immediate end of the steel tariff. The Biden Administration is
https://crsreports.congress.gov

U.S. Steel Manufacturing: National Security and Tariffs

IF11897
Heidi M. Peters, Analyst in U.S. Defense Acquisition
Policy

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