Cold Blue Steel

Are restrictions on steel imports a good idea?

Photo: Třinecké železárny. Source: Wikipedia

The Trump administration is considering restricting steel and aluminum imports for national security reasons. It says that the lack of domestic producers could make it hard for us to provide weapons for our armed forces. After all, there’s a lot of steel in a tank division. The larger issue is for the US to maintain an industrial base, that, in times of war could be shifted to defense production.

But at what cost? The US is the largest importer of steel in the world, mainly from the western hemisphere: Canada, Brazil, and Mexico. We do this because we find it to be cost-effective. It costs less to import Canadian steel, and they’re a reliable trading partner. Officials have argued that overcapacity in China has hammered the US steel industry, but we’ve already imposed restrictions on imports of Chinese steel. Their steel imports have fallen by over 70% in the last two years, and China is no longer a major supplier.

Source: Econofact

The US has studied whether imports have hurt national security 55 times since 1962, when the President was given this authority. Only twice have we found that imports were a problem, and both time it was oil imports. The US produced 79 million metric tons of steel last year, and imported 30 million. The defense industry needed less than 5 million tons. It’s hard to imagine our defense contractors running out of steel.

On the other hand, we can imagine how importers can enhance our security. By forcing our domestic producers to be more efficient with the facilities they have, importers encourage innovation, research and development, and modernization. Competition keeps us on our toes.

If we impose import restrictions on our major trading partners, they could easily retaliate – the way tariffs multiplied on food products in the late ‘90s. And an expanding trade war wouldn’t be good for anyone’s security.

Douglas R. Tengdin, CFA

By | 2017-07-17T12:21:17+00:00 June 21st, 2017|Global Market Update|0 Comments

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