The U.S. steel industry, a mainstay of the economy for more than 100 years, has been shrinking. Because of foreign imports, technology, and an overall surplus of steel throughout the world, the U.S. steel industry has struggled in recent years to keep jobs and production at steady levels.
The global economy isn’t growing very quickly, and the global demand for steel is actually declining a little bit each year. Despite this decline, the world is dealing with steel overproduction. As you can probably imagine, the effect on both the domestic and international steel industries isn’t good.
In 2016, the supply for steel exceeded the demand by between 400 and 700 million tons. With global demand at about 1.5 billion tons, that excess is no small amount. One major reason for this revolves around China. When China was in a development boom, the country produced a lot of steel and benefited from that production. But China’s development has slowed in recent years.
The Chinese steel industry is struggling to adapt to falling demand. Since 2015, China has produced more steel than the country needs. Companies with too much steel on hand turn to other markets to sell the excess. One of those markets is the United States. Chinese steel overproduction has a major effect on the global economy, so much so that the Chinese government is trying to cut steel production by hundreds of millions of tons.
The U.S. dollar’s strength or weakness in the global economy affects whether or not foreign companies can afford U.S. steel. When the U.S. dollar goes up, that makes U.S. steel more expensive for countries with weaker currencies, which means importing the U.S. product is sometimes out of the question for cost reasons. Right now the dollar is strong.
Sometimes, the cost of importing steel from foreign countries is cheaper than using American-made steel in the U.S. Even with the tariffs and transportation costs, a lower currency value somewhere else means cheaper steel. Some U.S. companies save money when they import steel instead of buying it domestically. This is impacting an entire B2B industry.
In 2015, 29% of steel used in the U.S. was imported. Increased use of imported steel affects U.S. jobs in the steel manufacturing industry in cities such as Chicago, where manufacturing continues to be an economic staple. Some domestic companies have had to reduce production, resulting in thousands of steel job losses. For Americans who live in steel cities and who have worked in the steel industry for generations, these job losses are devastating.
At the same time, steel production technology also affects how many steel jobs each manufacturing company needs. Mechanization and streamlining increases efficiency in steel production, which means companies need fewer workers overall. The outlook isn’t all sour, however. Because this production is more complex, specialized positions are now available that didn’t exist before. The people employed in the industry now tend to make higher wages because the jobs are more complex. Employment might be going down, but average wages are actually going up.
Not all foreign products are inferior, but U.S. companies looking for a big cost-cut might choose a foreign manufacturer with a product that can’t measure up to U.S. quality. As Signature Metal Works CEO Peter Symovonyk says, “If a competitor is using an inferior version of the product from overseas, they are then able to underbid us but not only do we lose the job, the client then suffers as well. They have no idea.”
Cutting costs is only one aspect to consider when choosing a steel manufacturer. Many companies create products that require specific steel pieces. Some of these call for unique production methods that certain manufacturers, both foreign and U.S., don’t do or don’t do well.
One possible solution, which the U.S. steel industry favors, is to increase tariffs on foreign imports. This would involve the U.S. government giving preferential treatment to the U.S. steel industry over foreign competitors, effectively providing incentives for domestic companies to buy domestic products. Proponents of this solution talk about boosting the U.S. steel industry and creating more steel jobs, or at least bringing back some of the jobs that have been lost.
Thanks to the Tariff Act of 1930, the U.S. has something called Anti-Dumping Duties. These are tariffs the government imposes when foreign imports are priced unfairly low and are injuring the economy at home. These tariffs have mixed results. The steel industry already has dozens in place, with the number steadily rising. But whether or not the tariffs have truly impacted the foreign vs. domestic steel tug-of-war is an unanswered question. Putting more in place may not have the effect steel manufacturers are hoping for.
For example, if a home appliance manufacturer has to pay 10% more for steel, the end product will be more expensive. This is especially true for companies that source steel from the mini mills that create niche steel products using specialized processes, because some of those niche production companies are overseas, and therefore subject to tariffs.
The U.S. can take steps to address the problem both at home and abroad, but fixing the global surplus of steel will take more than one country’s actions. This global overproduction impacts more than just the U.S. economy, with other countries including China feeling the effects, as well. The Trump administration has taken some steps, such as mandating the use of domestic steel for pipeline projects, but that may end up being just a drop in the bucket. Let’s hope that bucket is at least made from U.S. steel.