A $1-trillion US infrastructure package won’t be passed next year, and risks are mounting for the US-Mexico-Canada Agreement (USMCA) as well, the president and chief executive officer of the American Iron & Steel Institute (AISI) said.
The $1-trillion bust
“The big trillion-dollar infrastructure bill, that’s not happening before the election,” AISI president and chief executive officer Thomas J. Gibson told Fastmarkets in an exclusive interview on the sidelines of the World Steel Association (Worldsteel) conference on Monday October 14 in Monterrey, Mexico.
The US presidential election will not take place until November 2020, but campaigning has already begun in earnest.
Even absent an election, “there is not a way to pay for it,” Gibson said.
One way would be to create a source of revenue such as a new tax or a user fee. But that “seems to bridge too far.” And some Democrats’ hopes of repealing portions of the Trump administration’s tax reforms to pay for roads and bridges are equally implausible, he said.
What might be more realistic to expect is a transportation bill, especially in an election year when Congress might be itching to show constituents that it has accomplished something tangible. Such circumstances led to the passage of a water resources bill during a similarly fraught election year in 2000, Gibson noted.
Congress is mulling a five-year, $287-billion transportation bill, which passed a key Senate panel in July, according to media reports.
“The funding makes it hard. But I’m not ready to throw in the towel for this Congress on a transportation bill,” Gibson said.
USMCA: Policy or alphabet soup?
The sleeper risk might be the USMCA - the replacement for the North American Free Trade Agreement - should it not be passed this year or should Democrats decide to re-open the text of the deal to insert stricter language on labor or environmental issues. “If you are going to get it done this year, they are going to have to get it done as is," Gibson said.
The USMCA has been ratified in Canada and Mexico but not in the US.
The big question is whether Nancy Pelosi, the speaker of the House of Representatives and a Democrat, will be able to convince enough of her members to work with Republicans on a deal that the steel industry in particular supports because of stringent country-of-origin language, Gibson said.
“It had been a political calculation before, just with the election. Now [the impeachment inquiry against US President Donald Trump] is definitely a complicating factor that plays into it,” he said. “Our hope, and everybody’s expectation, is that the Congress and the administration will still be able to work together even while impeachment goes forward.”
One reason for hope is that US Trade Representative Robert Lighthizer has a good relationship with Congressional Democratic leadership. “And that will help get over the rough spots,” Gibson said, noting that many of Trump’s trade positions - skepticism about trade deals and globalism - have traditionally been held by Democrats, especially those in Midwestern manufacturing states.
But the potential problems aren’t confined to the United States. Mexico’s new president, Manuel López Obrador, has said his administration would support a deal signed under a previous administration. “But if the deal is going to be reopened, this new administration [in Mexico] would have a lot of new issues to put on the table,” Gibson said.
Reopening the deal now could also be problematic given upcoming elections in Canada.
Canada is holding federal elections on Monday October 21. Prime Minister Justin Trudeau's position has been weakened just ahead of the vote by a blackface scandal.
“Reopening the language at this point I think would be extraordinarily difficult and very problematic to getting a USMCA done this year or maybe even next year,” Gibson said. “You reopen the deal, and any new administration would want to have its input on it.”
Sun never sets on Section 232
The AISI in the meantime wants to see Section 232 tariffs and quotas on imported steel remain in place to protect the US market from global steelmaking overcapacity, Gibson said.
“There is no sunset on it. And it should stay in place until the underlying reason and need for it… is adequately addressed,” he said. “We are still in a world that has far too much steel capacity.”
More traditional trade actions - anti-dumping and countervailing duties, for example - come up for periodic "sunset" reviews that determine whether they remain necessary. Section 232 does not.
The US is attending the Organization for Economic Cooperation and Development's Global Forum on Steel Excess Capacity next week, and Gibson would like to see the work of the group continue. “The global forum needs to continue. The Chinese would have you believe it’s accomplished its mission and we should all go back to business as usual,” he said. “We do not agree with that at all. Overcapacity is still a problem.”
The AISI is also skeptical about official numbers from China indicating that capacity has been reduced. “We rely on (the China Iron & Steel Association) for the data, and CISA’s members are not the entire universe of steel producers in China - so we’re skeptics.”
And given announced capacity expansions in China, even official numbers might begin to edge up, Gibson said.