Why President Trump’s ‘Buy American’ Order May Not Help U.S. Steel

April 19, 2017, 11:47 AM UTC

U.S. President Donald Trump’s “Buy American, Hire American” executive order on Tuesday left questions about how the government would enforce the order and whether it would make a real difference in output and employment, according to steel executives and analysts.

“Buy American” provisions already exist in U.S. law but policing them has been difficult because of waivers granted to foreign companies that undercut their U.S. counterparts on pricing. Earlier on Tuesday, Trump ordered a review of government procurement rules favoring American companies to see if they are actually benefiting, especially the U.S. steel industry.

Trump’s executive order promises to properly police those provisions, but avoided detail about how that will happen.

Bill Hickey, president of Chicago-based Lapham-Hickey Steel, which has seven steel mills in the Midwest and Northeast, said he has heard talk of “Buy American” for decades, but American or foreign contractors frequently find loopholes to use imported steel.

“Politicians all talk the same, but at the end of the day it just doesn’t work,” Hickey said, citing waivers to existing provisions.

Charles Bradford of Bradford Research said focusing on “Buy American” for U.S. steel does not take into account that some steel products—including tin plate and semi-finished products—are not made in the United States. So if enforced improperly, it could cause supply problems in a U.S. market in which up to 25% of steel was imported in the first quarter of this year.

“The people who have pushed for this don’t have a clue and they don’t know math,” said Bradford.

Cutting off the supply of goods not made in the United States would create fresh problems for U.S. companies, he said.

In the construction industry, there also are concerns over “too strict a definition of what constitutes U.S.-made steel products,” said Kenneth Simonson, chief economist of the Associated General Contractors of America.

Simonson cited concerns with steel that might have been melted down from scrap metal that could have come from outside the United States, for example, and tracing its origins before that point.

Trump’s White House track record so far also helps fuel skepticism inside the industry.

Instead of bold action promised last year by then-candidate Trump on the North American Free Trade Agreement, on China, and free trade agreements, the new administration has “not shown much evidence of doing so,” said KeyBanc Capital Markets steel analyst Philip Gibbs.

“I’m a lot less optimistic than I was three-and-a-half months ago because so far what I’ve seen coming out of the Trump administration is the same as the prior administration,” he added.

As a result, Gibbs said investors should dial back expectations that Trump will do anything meaningful on trade, or on infrastructure which is where such an order could make a difference.

Investors seemed to shrug off Tuesday’s executive order. Nucor (NUE) shares closed up 0.2% at $57.33, AK Steel Holding (AKS) gained a penny to end at $6.32 and United States Steel (X) closed down 0.5% at $28.73.

AK Steel did not respond to requests for comment. Nucor and U.S. Steel both welcomed the president’s executive order.

The move was welcomed by labor unions. The United Steelworkers said that under current practice, “contractors often try to avoid the law through loopholes to buy cheap and often substandard foreign products like many from China.”

Thomas Gibson, chief executive of lobby group the American Iron and Steel Institute, said in a statement that “Buy American” provisions “are vital to the health of the domestic steel industry, and have helped create manufacturing jobs and build American infrastructure.”

Veteran steel industry analyst Michelle Applebaum said while it remains to be seen how thoroughly the Trump administration will police the steel industry, the executive order sends a clear message to steel importers.

“Trump has just created more risk for anyone who wants to import steel,” she said. “If he puts money behind enforcement that will force people to play by the rules and that will be a good thing.”

Read More

Great ResignationDiversity and InclusionCompensationCEO DailyCFO DailyModern Board