President Donald Trump on Thursday launched a trade probe against China and other exporters of cheap steel into the U.S. market, raising the possibility of new tariffs and sending shares of some U.S. steel makers up over 8%.
Citing concerns about national security, Trump made the announcement at a White House ceremony with U.S. steel executives from Nucor (NUE), United States Steel (X) and TimkenSteel (TKR) alongside Commerce Secretary Wilbur Ross, a billionaire businessman who made part of his fortune investing in the steel business.
“Steel is critical to both our economy and our military,” said Trump, a Republican. “This is not an area where we can afford to become dependent on foreign countries.”
Trump won many votes in industrial states like Michigan and Pennsylvania with a pledge to boost manufacturing and crack down on Chinese trade practices.
China is the largest national producer and makes far more steel than it consumes, selling the excess output overseas, often undercutting domestic producers.
The unusual step of launching an investigation comes as Trump is pressuring China to do more to rein in an increasingly belligerent North Korea. When Chinese President Xi Jinping visited Trump in Florida earlier this month, Trump raised the possibility of using trade as a lever to coax China to do more.
“Everything they export is dumping,” said Derek Scissors, Asia economist at the American Enterprise Institute, a Washington think tank.
Ross cast the decision to initiate the probe as a response to Chinese exports of steel into the United States reaching the point where they now account for 26% of the U.S. market.
Chinese exports have risen “despite repeated Chinese claims that they were going to reduce their steel capacity,” said Ross, whom The Economist, a business magazine that champions free trade, in 2004 labeled “Mr. Protectionism” for his history of owning businesses protected from foreign competition.
Ross said that if the Commerce inquiry finds the U.S. steel industry is suffering from too much steel imports, he will recommend retaliatory steps that could include tariffs.
Diverging from the Obama administration’s approach to the issue, which relied largely on filing complaints to the World Trade Organization (WTO), Trump ordered a probe under Section 232 of the Trade Expansion Act of 1962, which lets the president impose restrictions on imports for reasons of national security.
In October 2001, a Commerce Department investigation found “no probative evidence” that imports of iron ore and semi-finished steel threaten to impair U.S. national security.
Steel shares had rallied after Trump won the November election amid promises for increased infrastructure spending. On Thursday shares of Steel Dynamics, AK Steel, Cliffs Natural Resources, Allegheny Technologies and other steel makers closed between 4% and 8.5% higher.
Profits Cited
The United States has nearly 100 plants that make millions of tons of steel annually. The U.S. government has attempted to shield them from cheap foreign steel chiefly through the WTO, but the Trump administration said this has had little impact.
“The artificially low prices caused by excess capacity and unfairly traded imports suppress profits in the American steel industry,” the administration said in a statement.
Nucor Chairman John Ferriola said in a statement that the steelmaker welcomed the president’s move. “We look forward to continuing to work with the president and Secretary Ross to ensure our trade laws are enforced so that U.S. manufacturers can compete on a level-playing field,” he said.
Experts were skeptical about the administration’s argument that cheap Chinese steel threatened U.S. national security.
The Defense Department’s annual steel requirements comprise less than 0.3% of the industry’s output by weight.
“There is no doubt that steel plays a role in our national security and the manufacturing of U.S. weapons systems,” said Jeff Bialos, a partner at law firm Eversheds Sutherland, who has worked on steel trade cases in the past.
“But the Department of Defense only consumes a small portion of domestic steel output, and this has decreased over the past decade as composites technology has advanced,” Bialos said.
Some of the military’s largest consumers of steel are U.S. Navy shipbuilders Huntington Ingalls Industries and Lockheed Martin.
Scissors said the United States has other ways to take on China over steel trade issues, other than invoking national security.
“Talking about it as a national security issue – I don’t think it’s necessary and I don’t think it’s justified,” he said.