US agricultural exports would also suffer.
Some people are nervous over what might be included in the U.S. Department of Commerce’s report on its Section 302 investigation of steel imports. “As the Trump Administration nears a determination on whether imported steel poses a threat to U.S. national security,” read a press announcement, the American Institute for International Steel held a get-together in Washington a couple of weeks ago to introduce a report detailing the “widespread and potentially devastating impacts of a Section 232 trade remedy.”
Their anxiety is understandable. The AIIS represents steel importers who choose to rely on inputs from abroad for a variety of reasons, whether it is lower prices or unique product attributes.
The Commerce Department usually doesn’t make broad pronouncements about large import sectors. They usually investigate complaints by U.S. producers about specific imported products, and there are dozens of different sorts of steel imports. Despite the protests by importers that it would be unfair to prejudice an entire import sector like steel, the Commerce Department has not ruled out the possibility that it might do just that. In early April, Commerce stated that its Section 232 investigation focus on whether steel imports writ large represent a threat to national security.
That leaves steel importers very nervous indeed. On the other hand, Commerce’s report is three month’s overdue, according to the timetable President Donald Trump gave the department, raising the question as to whether the investigation remains an administration priority.
A Game of Chicken
The AIIS report, undertaken by the consultancy Martin Associates and co-sponsored by The National Chicken Council, sought to “quantify the national economic impacts of imported iron and steel products…to the intermediate and final end users.” With the administration advancing the possibility of imposing trade restrictions and quotas on imported iron and steel products “it is critical to advance a defensible understanding,” the report posited, “of the importance of imported iron and steel products to the ports and transportation logistics supply chains that are the conduit for delivery of these products to the end users, as well as to the domestic industries that are dependent on the use of imported iron and steel products.” End users include auto and transportation equipment manufacturers, steel fabricators, and the construction industry.
One important conclusion of the report is that the impact of import restrictions will be felt directly by sectors far afield from these direct users. U.S. agricultural exports, for example, often ship their commodities via backhauls on vessels that deliver steel to Gulf Coast and Great Lake ports, hence the concern by the chicken folks.
In 2016 there were 83,952 direct, induced and indirect jobs in the United States generated by imported iron and steel products moving via the nation’s seaports. Of the 83,952 jobs, 26,432 jobs are directly generated by the imported iron and steel cargo and related vessel activity. As the result of local and national purchases by those 26,432 individuals holding the direct jobs, an additional 33,182 induced jobs were supported in the national economy. In addition, as the result of $1.9 billion of purchases by businesses supplying the direct services at the marine terminals, and by businesses dependent upon the imported iron and steel products and vessel activity, 24,338 indirect jobs were created in the national economy. An additional 1.2 million jobs are with related importers and users of the imported iron and steel products moving through the nation’s seaports.
The report concluded that last, imported iron and steel activity supported $239.8 billion of total economic activity, or about 1.3% of the nation’s GDP. Of that, $4.2 billion represents revenue received by companies providing services to the imported iron and steel cargo and vessels. $1.4 billion of that was used to pay the salaries of 26,432 workers and $1.9 billion was used to make purchases of goods and services.
Imported iron and steel also supported $19.4 billion of federal, state, and local taxes an additional $17.1 billion in tax revenue created as a result of the economic activity of the importers.
Then, there will be the consequences to the agricultural exporters. In addition to the economic impacts generated by the imported steel, the report found that the majority of ocean vessels carrying imported steel into the Gulf Coast and Great Lakes ports provide the backhaul vessel capacity to move export grain from the U.S. to overseas markets. “If import restrictions are imposed on the imported iron and steel products,” the report concluded, “not only will the 1.3 million jobs be at risk, but the ocean cost to export grain from the U.S., particularly from the Lower Mississippi River, will increase due to the restricted number of vessels that will be available to carry grain exports.”
This will have a ripple effect into the nation’s agricultural sector. Forty-seven million tons of grain were exported through the Lower Mississippi River in 2016, generating 10,830 direct, induced, and indirect jobs and supporting about 39,000 jobs in the agricultural industry.
“With the imposition of import restrictions on iron and steel products,” the report stated, “these jobs in the U.S. agricultural sector are also at risk.”
Martin Associates conducted a similar analysis in 2006 to assess the impacts of the Section 201 imported iron and steel restrictions. Over 22 months beginning in March 2002, the restrictions forced 9.3 million tons of steel products from the U.S. market, costing the economy 22 million person hours, $77.3 million of federal taxes, and $391 million in personal income and consumption expenditures.
The trade restrictions contemplated by the Trump administration, the report concluded, “will put at risk nearly 84,000 direct, induced and indirect jobs that are now generated by the handling and transport of the imported iron and steel products, and further potentially impact more than 1.2 million jobs with users of the imported iron and steel products.”
It all makes for a scary picture for steel importers, agricultural exporters, and the economy as a whole. The question remains whether the administration would dare take action against the entirety of steel imports. Trump has proven that he is amenable to making big, bold gestures, without fully understanding their consequences, so it would be foolish to rule it out.
On the other hand, Trump told the Wall Street Journal in July that he wasn’t in any rush to decide on a steel trade policy. He’s “waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure,” the president said. Given how the president’s agenda is proceeding through Congress, that day may never come.