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Nerves of steel

Jan 30, 2017 | 11:25 AM | Michael Cowden

Tags  Trade, Donald Trump, imports, steel, Philip Bell, Steel Manufacturers' Association, SMA, China anti-dumping


The U.S. steel industry will have the ear of President-elect Donald Trump as his administration pushes through potentially radical changes to U.S. trade policies, according to industry experts.

And U.S. mills are likely to benefit from aggressive trade policies that could further limit steel imports and potentially imports of other steel-containing goods such as passenger vehicles and appliances, they said.

Such policies are likely to boost profits at mills while also spurring hiring and capital expenditures, experts said. But what’s good for mills may not be good for the rest of the economy, some cautioned, noting that inflation could harm U.S. consumers if the Trump administration pushes an arguably protectionist trade issues too far, too fast.

“I think you have a zeitgeist in this country right now that says if we want trade, we want it to be fair and to benefit American workers and American companies,” Philip Bell, president of the Steel Manufacturers’ Association (SMA), told AMM.

Steel and “fair” trade were key planks not only of Trump’s campaign but also of that of his Democratic rival, Hillary Clinton, Bell noted.

“It’s cause for optimism. But now you need to turn that political rhetoric into political reality. And it’s wait and see on that,” he said.

For starters, the domestic steel industry would like to see the Trump administration designate China and perhaps other countries as currency manipulators, Bell said. Such a move would allow U.S. trade officials to impose countervailing duties to the extent a currency is deemed to be devalued, he said.

Favorable energy prices or raw material prices are already considered to be subsidies against which countervailing duties can be assessed, Bell said. And there is no reason why an artificially low currency should not be countervailed in the same way—and no reason why the U.S. shouldn’t start implementing such duties soon, he said.

“There is some belief that this can be done under existing rules and regulations,” Bell noted. “And it would be right in line with some of the president-elect’s strong language on currency manipulation.”

The administration could also help the steel industry and U.S. manufacturing in general by “self-initiating” trade cases, Bell said. Past administrations have typically left trade petitions up to private companies or unions to file. The problem is, that process is expensive and slow, he said.

A private company might take 12 to 18 months to gather data before filing a trade petition, Bell noted. And it may take the government at least that long to decide whether domestic manufacturers have been injured and whether duties should be imposed, he said.

But the government—whether the president, the speaker of the House or even the Senate majority leader—could initiate a case as soon as it saw market conditions deteriorating and “unfair” trade practices taking place, according to Bell.

“It (self-initiation) has not been used a lot. And it has not been used recently. And that’s why we think there should be more serious consideration given to it,” he said.

And trade petitions under the Trump administration may not be limited to traditional anti-dumping and countervailing duty cases, Bell noted. There could be more anti-circumvention petitions filed resembling one targeting cold-rolled and coated flat-rolled steel from Vietnam, he said.

“Anti-dumping and countervailing duty cases don’t truly reflect the true amount of dumping and subsidization that’s taking place, so anti-circumvention cases are a nice way to supplement that,” Bell said. Besides, successful AD/CVD petitions have already been filed against many finished steel goods, he said.

What’s more U.S. trade officials already have the tools to bring trade cases more quickly and aggressively thanks to the Enforcing Orders and Reducing Circumvention and Evasion (Enforce) Act signed into law by President Obama last year. The provisions of the act have not been implemented as forcefully to date as steel might like, partly because of “bureaucratic inertia” and a lack of cooperation with industry at times under the outgoing administration, he said.

The unsuccessful anti-circumvention petition filed by Wheatland Tube Co., a subsidiary of Chicago-based Zekelman Industries Inc., highlights such problems, Bell said. But similar roadblocks could “melt away” under the Trump administration, he said.

“Victory comes in stages. You may lose a battle or two before you win the war,” Bell added.

Steel will be a “favored child” for the next four years and potentially the next eight years under President-elect Trump, according to Philip Gibbs, metals and mining equity research analysts at Cleveland-based KeyBanc Capital Markets Inc.

For proof, one need look no further than Trump’s Cabinet picks: investor and steel industry veteran Wilbur Ross has been nominated to be Commerce Secretary and trade attorneys have been picked for other powerful roles in the administration, he said.

Robert Lighthizer, for example, has been nominated to be U.S. Trade Representative (USTR). He is a partner in the international trade practice at Washington-based law firm Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates, and has long represented Pittsburgh-based U.S. Steel Corp. in trade disputes.

Dan DiMicco, former chief executive officer, of Charlotte, N.C.-based Nucor Corp. headed Trump’s “landing team” for USTR. He will remain active with transition efforts through the end of the month, he said in an e-mail to AMM on Jan. 11. 

At a minimum, the Trump administration will sustain the strong momentum the domestic industry has already gathered through a string of successful trade case filings under President Obama, Gibbs said. And Trump could, as part of his tax reform package, not only slash taxes for U.S. companies but also impose valued-added tax (VATs) on imports, he added.

VAT costs would come in addition to any pre-existing duties on imports, Gibbs noted. They would hit not only big box stores that rely on imported goods but also steel consumers bringing rebar from Turkey, for example, he said.

The result: prices could surge not only for steel products but also for consumer goods such as appliances, passenger vehicles and even knick-knacks life coffee coasters, Gibbs said. “It makes importing less fruitful and more costly, and that drives inflation because the United States is not set up to manufacture all the things we import,” he noted.

The question now is not whether the trade landscape will change under Trump but whether the market has priced in just how drastically it could, Gibbs said. “There is a lot more to think about right now in terms of the steel industry and the U.S. economy than I think there has been in quite a while. Because the economy has been relatively predictable. But with radical changes, I don’t think you can say that you know how it’s going to turn out,” he said. 

There is little doubt industrial companies, including steelmakers, stand to benefit, Gibbs said. What is less clear is whether what’s good for steel is also good for U.S. consumers, he added. “I think he (Trump) means well in terms of the American people,” Gibbs said. “At the heart of what they are trying to do is create jobs. . . . But consumer inflation is a byproduct of that.”

It’s also important to keep in mind that the policies Trump might implement aren’t without precedent. The United States has in the past implemented steep tariffs when the dollar was strong and oil prices were weak, notably in the 1980s and the early 2000s, he said.

“The unknown is how far this administration takes it,” Gibbs warned. “Because for every action, there is a reaction. And I don’t know that anyone has contemplated what the global reaction to this might be or that it might force them (the Trump administration) to take more of a middle ground as time passes.”

The U.S. economy consumers approximately 120 million tons of finished steel annually, of which approximately 20 to 30 percent is imported, John Foster, chairman of the American Institute for International Steel (AIIS), told AMM.

That ratio doesn’t change dramatically whether times or good or bad, and approximately 20 percent of it is accounted for by domestic mills imported semi-finished goods such blooms, billets and slabs, he said.

And the incoming administration is likely aware of the importance if imports, even to the U.S. steel industry, given that Trump has nominated Ross to be his Commerce secretary, Foster said. Ross is a man Foster said he knows from his time at the former Jones and Laughlin Steel Co., which became part of Ross’s International Steel Group Inc. 

“My view of Mr. Ross is that he is pragmatic, logical and balanced manager with a deep insight into the strengths and weaknesses of the U.S. steel industry,” he said. “At the same time, he is a global man with global interests and a global understanding, which makes me believe he will support a balanced and reasonably unbiased approach to the free and responsible trade in steel.”

Ross’s nomination is a “hopeful sign” that Trump appreciates the complexity of the global economy, Foster said. And Trump, a businessman, likely understands the old maxim that a rising tide lifts all boats, he said. 

What’s holding back the U.S. steel industry is not imports but a U.S. gross domestic product (GDP) that has risen a meager 1.4 percent per year since 2009, Foster said. Calls for an aggressive application of U.S. trade laws are a “siren’s song” that won’t boost growth and could ultimately prove perilous to both domestic mills and to the consumer demand that drives the vast majority of U.S. GDP, he said.

“History has shown (aggressive trade measures) to be generally short-term fixes that ultimately hurt many in our shared customer base and (that) were not a cure for the fundamental general economic weakness in play nor, with all due respect, certain inherent inefficiencies within parts of the domestic industry itself,” he said.



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