Big Win!
Tariffs on the “dumping” of Steel in the United States have totally revived our Steel Industry. New and expanded plants are happening all over the U.S. We have not only saved this important industry, but created many jobs. Also, billions paid to our treasury. A BIG WIN FOR U.S.
— Donald J. Trump (@realDonaldTrump) January 28, 2019
Investigating the Big Win
Bloomberg reports Trump’s Tariff Twist Cost U.S. Steel $5.5 Billion.
President Donald Trump’s tariffs on foreign steel have sped the decline of some of the U.S. mills he vowed to help.
Exuberance over the levies dramatically boosted U.S. output just as the global economy was cooling, undercutting demand. That dropped prices, creating a stark divide between companies like Nucor Corp., that use cheaper-to-run electric-arc furnaces to recycle scrap into steel products, and those including U.S. Steel Corp., with more costly legacy blast furnaces.
Since Trump announced the tariffs 16 months ago, U.S. Steel has lost almost 70% of its market value, or $5.5 billion, and idled two American furnaces in mid-June that couldn’t be run profitably at the lowest prices since 2016. Meanwhile, Nucor, down around 20%, has touted $2.5 billion in expansion projects.
Last July, Trump stood on a makeshift stage at a U.S. Steel mill in Granite City, Illinois, and beamed as workers cheered the tariffs. At that point, the company had already restarted one of two blast furnaces at Granite City, and vowed the second would soon be brought online.
“Workers are back on the job, and we’re once again pouring new American steel into the spine of our country,” Trump said during the hour-long program. “U.S. Steel is back.”
“Less efficient capacity should go away, but there is no guarantee that it permanently goes away,” Bank of America’s Tanners said. “It probably doesn’t go down without a fight.”
Dumping Nonsense
The US Steel debacle shows just how ludicrous the “China is dumping steel” meme really is.
The irony is US Steel corp. cannot even compete with the tariffs that it wanted.
Meanwhile chalk up another tariff “win” for the president.
Mike “Mish” Shedlock
The tariffs are just about trying to cage the Chinese Dragon – too little too late.
Trump seems to be a case of two negative numbers multiplying to become a positive. But that only works so long in economics. GDP numbers are now below 2% again. It will be an interesting summer and fall to say the least.
Interesting that you are the only person in the country to receive up to the minute GDP reports, in the middle of a quarter.
Real GDP from first quarter was 1.5%, meaning nominal GDP was close to 3.5%. Go ahead and act confused by that. Don’t worry, I know inventory adjustments is WAY too advanced for you
Check the GDPNow numbers for a current look. You can talk about whatever adjustments you want but I’ve been saying for awhile we will be back below 2% once the hit from the tax cuts ended. Go back to the hole you crawled out of.
GDPNow numbers are forecasts, subject to substantial revision.
You made the false claim that you were looknig at actual GDP numbers.
You said it yourself. Real GDP was below 2% already. Wont get above it in q2 or q3.
Real GDP is forecast (by some) to be 1.5%. Nominal GDP that you referenced will be 3.5% if that forecast is correct.
Whether that forecast turns out to be correct or not… your comment about two negative numbers still makes no sense. You don’t have 2nd quarter GDP numbers as you implied.
And your anti Trump bias undermines everything you write
LOL. Except I voted for the guy. So how can I be anti-Trump ? Trump is the least of anyone’s problems. He has been more lucky than good but it is good to be lucky. That was the point of my two negative numbers multiplying to be a positive. The effect of tax cuts has waned now and while economic activity is still positive, it is just returning to its 10 year average of ~1-2%. While the tax cut was nice, a lot of the money has simply gone into goosing asset values on stock markets.
Clearly US Steel is too inefficient to benefit from a 25% tariff. Perhaps a 50% tariff would do it? Maybe 100%?
What is missing from this article is information regarding all the US Manufacturers who use steel. What economics tells you will happen when you impose a 25% steel tariff is:
It would appear that this is what happened. US Steel saw a big jump in demand, but it has vanished, presumably due to less manufacturing being done in the US that uses steel. You could raise the tariffs, and it would be more of the same, until eventually there are no manufacturers in the US who use steel.
option #6 … Manufacturers buy Chinese or South Korean or Indian steel, and build their widgets anyplace but China. The widgets get exported from Phillipines or Brazil or Mexico to the US and everywhere else.
option #7 … manufacturers buy steel from China / South Korea / India and sell their product to everywhere except the US. US products do not evolve to meet changing customer needs. US Steel customers put US Steel out of its misery in revenge.
In all seven scenarios — US Steel does not update its plants. USW members haven’t learned how to operate new equipment, and all they do is whine anyway. Even if X management suddenly found a brain, union dolts would still be in the way. The two go together.
…
In some scenarios, Trump uses silly tariffs and standard negotiating tactics to get better trade terms for higher value US products and services. Products that employ far more people (in aggregate) than the steel industry. Products that pay better wages than the steel industry.
This prospect will drive Mish absolutely MAD 🙂
Are any of you people actually in the Manufacturing business and buy steel?
What a load of crap you are selling.
First of all, steel is generally a small portion of the actual cost of manufactured products. I’m in the steel fabricated products manufacturing business. Steel is about 12% of selling price. Steel now is actually right about where it was before the tariffs. For a short time, the tariffs had a small negative impact. Now more items are being made in the US. Companies from Europe are opening in the US and now want to establish US based supply chains. This was the goal of tariffs and it is working.
I am not, but know people who do use steel. One I knew was a guy that ran a business in Kansas City who made wire hangers out of steel. He went to from profitable to out of business in a matter of months when Bush put steel tariffs on in 2002. He was forced to raise his prices 25% due to higher steel costs, while the price of Chinese hangers remained the same. About a year in they added tariffs on Hangers, too, forcing the price up on Chinese Hangers, but it was too late. He was closed, and his equipment had been purchased and shipped to China. The name of the company was Midwest Wire Hanger, for what it’s worth, and it seems to have been re-born, again making some steel items, though it may be different people with a similar compay name.
Well 12% won’t move the needle. I doubt manufacturing comes back, as it’s two generations since the USA moved from crunching metal for Main Street to crunching spreadsheet numbers for Wall Street. Citigroup merged with Primerica which used to be called American Can back in the early 1980s…
“President Donald Trump’s tariffs on foreign steel have sped the decline of some of the U.S. mills he vowed to help. Exuberance over the levies dramatically boosted U.S. output just as the global economy was cooling, undercutting demand. That dropped prices, creating a stark divide between companies like Nucor Corp., that use cheaper-to-run electric-arc furnaces to recycle scrap into steel products, and those including U.S. Steel Corp., with more costly legacy blast furnaces.”
Love the slant: “Trump’s tariffs actually hurt the US steel mills. Now, there is a world-wide slowdown in steel consumption and even the most efficient offshore mills are feeling the pinch, but that is all Trump’s fault! Oh, and US Steel runs crappy, outdated mills, but that’s Trump’s fault too!”
Yes. Trump’s tariffs are killing US Steel, that has a big steel mill in Slovakia. Trump’s tariffs redirected the dumping, and the problems to the European mills.
Reality hurts.
Wrong. it was already dead.
Billy Joel’s song “Allentown”, about the demise of US Steel, was written decades ago. Long before Trump, long before Obama, long before either Bush, long before Clinton, before Reagan…
The coroner was already filling out US Steel’s death certificate (and Joel was writing his song) while Carter was in office
US Steel might be dead in the US, but has a viable steel mill in Slovakia, that is shutting some production due to dumping of steel in the European market.
Yes, blast furnaces are so last century, but try to run electric arch furnaces without scrap metal. And where does scrap metal come from? Oh yeah, someone will always provide primary steel to US.
MaxMin – “… dumping of steel in the European market…”
US Steel has been whining about somebody dumping steel in some market since before I was born. You haven’t said anything new.
PS – Check your map. Hopefully it was updated since the USSR collapsed. You will find Trump is not president of Slovakia. Slovakia is not in the USA nor is it in China.
Your are just a big baby looking for someone else to blame
Mish,
Is free trade a religion that everything else is supposed to bow to?
How would you protect vital industries?
Are you ok with buying from the cheapest source if the source is trashing the environment and enslaving workers? If not, what methods would you employ to change this? Drop the environmental protections in the US? Attempt to enslave US workers?
US Steel can’t compete with Nucor. Steel prices have declined as the auto industry has. They are a big steel user.
“Mish, Is free trade a religion that everything else is supposed to bow to? “
“Free Trade” isn’t even an independent concept. Much less a religion.
As Acton put it: “Liberty is not a means to a higher political end. It is itself the highest political end.”
Trade has nothing to do with it. Liberty, aka freedom pure and simple, is the highest end. However, whatever and whomever free people themselves, and of their own free volition, choose to trade with, is simply no business of anyone but them. Whether or not you buy lemonade from a lemonade stand, and what you pay for it, is between you and the lemonade stand operator. And noone else. It’s not for me, Trump, nor anybody else, to “vote” over. Nor stick a gun in your face banning you from doing. Nor shaking you down for half the lemonade price over.
Freedom is just that: Freedom to do as you please. Not as some slimy politician pleases. Nor as some lynchmob “voting” over what to do with other people’s stuff, pleases.
I assume you are for no borders and a full libertarian agenda. I don’t think this has ever existed. To paraphrase Milton Freedman: “you can have open borders or a welfare state but not both.”
When you’ve eliminated the welfare state, regulatory sate and income taxes, then we should discuss trade . Until then, I wish you Good luck!
And until you have eliminated trade restrictions, the welfare state and regulatory state, we should not discuss income taxes? And until you have eliminated income taxes, the welfare state and trade restrictioions, we should not discuss the regulatory state? Etc., etc….
IOW, lets all just continue down the road to ever more oppressive totalitarianism, because until we’re back to Jefferson, it’s not worth challenging even the most outrageous, Kim like, arbitrary totalitarian overreach……
What order do you propose eliminating the totalitarian usurpation in? It’s not as if it makes much of a difference whether you get rid of them serially or in parallel, as long as you get rid of them all. So that Americans can live is some semblance of a free country again, instead of this totalitarian dump.
US Steel complained about evil British steel makers getting government subsidies. UK government went bankrupt, got an IMF bailout, Thatcher privatized many money losing companies including steel. US Steel “successfully” avoided modernizing their furnaces.
At that point (late 1960s to middle 70s), China was still under Mao, and Deng Xiopeng hadn’t implemented any of the reforms that turned China into an industrial power. Trump was probably in high school. Neither China nor Trump were involved. US Steel already had a problem.
Next the evil Japanese started winning against US Steel. US Steel complained to Carter (maybe?) and definitely Reagan about the need for tariffs. Ninjas, sumu wrestlers, all sorts of excuses… The Japanese simply had more efficient furnaces.
Next, the South Koreans built steel plants that were more efficient still. US Steel complained again / more, we need tariffs, blah blah blah. Never upgraded their own facilities.
And now the Chinese have “cheated” by building more efficient steel plants. Same drill from US Steel. It has nothing to do with China or Trump. Tariffs aren’t really the issue either. Its the antiquated steel mills of US Steel.
Trump is a negotiator and knows he needs allies to get his ideas pushed into law. He knows US Steel’s excuses, he used lots of steel to make his ugly buildings. He knows the tariff thing is stupid. But Trump also knows he can leverage the issue to get more important trade initiatives passed. Seems like a practical solution to me. Negotiate by demanding something crazy, and then “settle” for what you really want. Its definitely not how Washington DC has handled things in recent decades, but then DC has been hopelessly ineffective for decades.
I think Mish knows all this, but his Trump Derangement Syndrome often gets in his way 🙂
US Steel, Bethlehem Steel were and, in the case of US Steel, are still so hamstrung by union labor costs that they couldn’t hope to keep up. Another case of the unions gutting the golden goose. Unions only survive where the employers are trapped by capital costs or fixed location, as in the case of public utilities and government unions.
The global slowdown / recession, caused by govt largess, had already reduced demand for steel, but trying to pin everything on Trump is your status quo.
Well, the tariff is having the intended effect. Per the article, Nucor is expanding. Forget US Steel. I don’t think anything can save them.
WIn WIn WIn. If China starts to export more steel because Americans aren’t making it, they will have to pay more to subsidize the steel dumping. Because they have to remain competitive, they have to subsidize even more to compensate the tariffs. So you see, having China dump more subsidized steel is actually a tricky way to make them lose big time, and if they are losing, we are winning. All we have to figure out now is how we can stop them from using our piggy bank instead of their own. Maybe closing down the Fed and (our ability to monetize our military expenditures) would really give it to them. We could still have a military if we force them to pay for it from their piggy-bank, otherwise Huawei is out for good. So there.
Americans Shocked to Find their Rights Literally Vanish at U.S. Airports
The number of people detained, their phones and laptops searched without warrants, is exploding. Why? link to theamericanconservative.com
This happened to me, they rummaged through my phone, tablet, and luggage. Apparently, travel is a privilege for the rich and famous, who use private airports. If you choose to cross the border, you forfeit all rights to privacy: they can do almost anything to you. That’s why I don’t travel if I don’t have to.
The continuing sales pitch that the tariffs are not a tax on the American people is mind-boggling. I particularly love the tariffs “on Mexico” to force the border control issue; in a sane world, the Trump administration would be taxing remittances, many of which are being sent by illegals to families back home; that would make Mexico and other source-countries pay.
The problem is you need to define a “remittance”, and also overcome the inevitable reaction from the money transfer industry to route all Mexico-bound money subject to the tax via e.g. Japan or Canada to avoid the tax. Also, since trillions of dollars of instruments move onshore and offshore every day, any talk of tinkering by the clown show Trump likes to think of as his administration would inevitably create instability.
Blast furnaces: the grand symbol of the utter incompetence of American executive management.
I have to admit his tariff’s haven’t helped American industry much. Or even at all.