Why are US steel imports spiking this year?

Administration’s investigation into steel imports and threat of trade restrictions triggers rise in imports. The latest statistics, as made available by the American Iron and Steel Institute (AIIS), show that through the first nine months of 2017, total and finished steel imports into the United States are up 19.6% and 15.7%, respectively, as compared to the same period in 2016. On an annualized basis, 2017 steel imports would total 39.6 million tons and 30.5 million tons for finished products, up 19.8% and 15.9%, respectively against 2016. Why the spike in steel imports? Ironically, it was a reaction to an initiative undertaken by President Donald Trump that was supposed to protect the domestic steel industry.

In early April, the US Department of Commerce undertook an investigation of steel imports under Section 232 of the Trade Act, focusing on whether they represent a threat to national security. Later that month, President Donald Trump ordered the department to complete its report on an expedited timetable. By Trump’s standard, the department’s findings are now five months overdue. Commerce’s report will make recommendations, but the ultimate decision to impose trade measures under Section 232 is the President’s. Later, Trump backpedaled on the hurry-up timetable, telling the Wall Street Journal that “we don’t want to do it at this moment” and that he was “waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure” before he makes a decision on steel trade policy. That will no doubt bring us to January 15, which is the statutory deadline for the Commerce Department to submit its Section 232 report, unless the investigation is scrapped before then. Press reports over the summer indicated that the department already had a draft of the report ready, although nothing of its contents was made public. It’s apparent that the increased level of steel imports is connected with the desire of importers to make sure they had their supplies on hand before the Commerce Department and the president lowered the boom, if in fact that was to be their decision. Imports Accelerate The most significant data that points in that direction is that finished steel import market share peaked in June, around the time of Trump’s accelerated Section 232 deadline, when it was over the 30-percent mark. Finished steel import market share was an estimated 27% in September and is estimated at 28% for the first nine months of the year. Mid-summer optimism from US steel producers, who expected the Trump administration to enact some sort of trade remedy, has since quieted but has not yet gone away. The Section 232 fear among importers has also seemed to calm since the summer months, but is still present in the background. US steel producers couldn’t be blamed for thinking Trump would come to their aid, based on the president’s rhetoric, not only on the campaign trail, but also after taking office. “Wait till you see what I’m going to do for steel and your steel companies,” Trump said at a political rally in Cincinnati in June. “We’re going to stop the dumping and stop all of these wonderful other countries from coming in and killing our companies and our workers. We’ll be seeing that very soon. The steel folks are going to be very happy.” US steel producers are still hoping for Section 232 action as they addressed the issue during earnings calls with analysts and journalists in recent days. “Nucor continues to believe significant work remains to be done to achieve free and fair trade for U.S. manufacturers,” said Nucor CEO and Chairman John Ferriola during such a call. “More specifically, it’s time for comprehensive and broad-based remedies that address the illegal foreign trade practices that have materially weakened our nation’s economic vitality.”

Ferriola’s assessment came despite the fact that Nucor recently reported its highest year-to-date earnings since 2008. Some steel producers have been encouraged by their financial results this year, although a study suggests the excitement may be short-lived. (See sidebar on page 4) Meanwhile, steel importers are pushing back against the notion that increases in steel imports mean that trade restrictions are needed. “It is actually a sign that the economy is growing,” said a report from the American Institute for International Steel, which represents importers. The Bureau of Economic Analysis (BEA) reported the U.S. economy has recorded growth of at least three percent in back-to-back quarters for the first time in three years. “Businesses need access to quality steel imports at global market prices in order to expand,” the AIIS report said, “and the protectionist measures that some say should be implemented to shield domestic manufacturers from foreign competition would disrupt the steel supply chain, drive up capital costs, and increase expenses downstream all the way to the consumer.” The report added that trade restrictions that would also increase the cost of resources, “and trigger tit-for-tat retaliation leading to a trade war.” The report also noted that nearly 20% of all steel imports are imported into the U.S. by domestic steel mills in the form of semi-finished products. Protecting the Protected? In October, the AIIS wrote the president, requesting the termination to the Section 232 investigation. “The facts of the matter are the United States steel industry is already the most protected industry sector in the United States as evidenced by having the majority of all anti-dumping and countervailing duty orders on the Federal Register today,” the letter said. “In addition, the overall domestic steel industry has been profitable, according to Department of Commerce data, since 2009. Any further restrictions on steel imports beyond the existing trade laws will result in global retaliation well outside the steel realm and be severely detrimental to our country’s improving GDP that we are enjoying under your administration’s leadership.”

Commerce Department data released in October showed that the U.S. steel industry posted a combined net income of $864 million in the second quarter of this year, up from a net profit of $515 million in the first quarter, which included losses by U.S. Steel. U.S. Steel turned a profit of $261 million in the second quarter, up from a loss of $181 million in the first. All six of the companies included in the Commerce report—AK Steel, Carpenter Technology, Commercial Metals, Nucor, Steel Dynamics and US Steel—reported quarterly gains. Since the beginning of 2009, the six steel companies have collectively reported net earnings for 20 quarters.