In 2018, U.S. President Donald Trump imposed a 25 percent tariff on steel imports, fulfilling his electoral promise of protecting the U.S. steel industry. Trump’s tenure has been marked by tariffs on all trading partners, including NATO allies. However, president-elect Joe Biden is expected to take a different approach to tariffs than what we saw under Trump’s presidency. Would Joe Biden repeal Trump’s steel tariffs, and what would it mean for U.S. steel companies?
To begin with, we should understand that, despite Trump’s Section 232 steel tariffs, there hasn’t been a revival in the U.S. steel industry. On the contrary, there were job losses, including at U.S. Steel Corporation, as steel prices plunged. While steel prices rose sharply in the first half of 2018 after the tariffs were imposed, they fell thereafter.
Trump’s steel tariffs aren't solely responsible for the fall in steel prices
To be sure, Trump’s Section 232 tariffs led to a decline in U.S. steel imports and they fell YoY in 2018 and 2019. There is little denying that U.S. steel companies needed some sort of respite amid the surge in imports. Even Warren Buffett, who has otherwise been critical of Trump’s trade war with China, sounded supportive of his steel tariffs.
While one may blame Trump’s tariffs for the fall in U.S. steel prices, the global manufacturing slowdown over the last two years is the prime culprit. Trump’s frequent tinkering with the tariffs has also led to uncertainty.
Will Biden repeal Trump’s steel tariffs?
In an interview in August, Biden had said “We make up 25 percent of the world’s economy, but we poked our finger in the eyes of all of our allies out there,” referring to Trump’s tariffs on trade partners. Incidentally, Section 232 tariffs targeted all countries but concessions were granted to some, like Canada, Mexico, and South Korea. However, Europe and Japan are still affected by the tariffs.
Biden is expected to take allies along and adopt a joint stance against China’s trade policies. To take allies along, the Biden administration would have to rebuild their confidence, which may mean rolling back the Section 232 steel and aluminum tariffs on some allies.
How would U.S. steel companies be impacted if Section 232 tariffs are repealed?
Unlike other industrial products where one could blame China for higher imports into the U.S., China is not the major exporter of steel to the U.S. Chinese steel accounts for about 2 percent of U.S. steel imports.
The problem for the U.S. — or, for that matter, the global steel industry — has been global overcapacity. One may argue that Trump’s Section 232 tariffs only added to the problem as U.S. steel companies announced new capacity additions after the tariffs were imposed.
In my view, Biden might take a cautious stance on repealing Trump’s steel tariffs. While he would likely repeal the tariffs, he would keep some safeguards in place so that U.S. steel imports don’t surge after the repeal.
If Biden repeals the tariffs, it would be the second time this century the U.S. rolled back a wider steel tariff. President George Bush had also tried his hands at steel tariffs in 2002 but ended up retracting in less than two years. Trump’s steel tariffs would be in effect for three years by next March.
Biden would likely face opposition from U.S. steel companies if he went ahead with a repeal. However, in the medium to long term, repealing the tariffs would benefit U.S. manufacturing and lead to higher demand for steel in the U.S.
In 2018, Trump called himself a "Tariff Man" and next year claimed that the U.S. steel industry is "thriving" because of his tariffs. Ironically, U.S. Steel Corporation announced layoffs on the day Trump began his 2020 campaign.
For the U.S. steel industry to really thrive, we need a global manufacturing rebound and stable trade relations. Biden's repealing of steel tariffs could just be the starting point.