The Trump Administration has announced that thee will be an across-the-board introduction of increased tariff on the importation of steel and aluminium into the U.S. The stated motivation is the need to “rebuild” the steel and aluminium production in the U.S. to restore jobs and domestic supply of these two broad ranges of products. Even a cursory examination of the market indicates that these tariffs will not restore either industries to a condition of autarky or create the types of jobs which the rhetoric promises.
Before addressing the impact of these tariffs on U.S. trade it would be useful to understand why the U.S. iron and industries failed to maintain themselves as viable industries in recent years.
The High Cost of U.S. Iron and Steel Production:
A primary reason for the failure of the U.S. iron and steel industry to prosper was that U.S. production has a fatal flaw. The raw materials used for the production of iron have been of low quality and requiring higher cash inputs to make them compatible with modern steelmaking.
During the early iron-producing eras of the 19th and early 20th century the U.S. produced its iron from the high-quality hematite iron ores available in northern U.S. mines around the Great Lakes. These hematite ores contain about 70% iron. These deposits are commonly referred to as "direct shipping ores"(DSO) or "natural ores". Increasing iron ore demand during World War II dramatically reduced the availability of these high-grade hematite ores in the United States. This meant that US. producers had to use lower-grade iron ore sources, principally through the utilization of magnetite and taconite (with an iron content of around 25-30%.
The principal domestic source of iron ore has been taconite. Taconite is an iron ore found in banded iron formations (BIFs). They are found in sedimentary Precambrian rocks bound with iron compounded with thinly bedded iron minerals and silica (as quartz). The mining of taconite involves moving massive amounts of ore and generating massive tips of waste products. The waste comes in two forms, non-ore bedrock in the mine (the overburden or interburden locally known as ‘mullock’), and unwanted minerals which are an intrinsic part of the ore rock itself (‘gangue’). The mullock is mined and piled in waste dumps, and the gangue is separated during the beneficiation process and is removed as tailings.[i] Taconite tailings are mostly the mineral quartz, which is chemically inert. This material is stored in large, regulated water settling ponds.
This taconite is of such poor quality that it has to be concentrated (‘beneficiation’). The ore is ground into a fine powder, the magnetite is separated from the gangue by strong magnets, and the powdered iron concentrate is combined with a binder such as bentonite clay and limestone as a flux. As a last step, it is rolled into pellets about one centimetre in diameter that contains approximately 65% iron. The pellets are fired at a very high temperature to harden them and make them durable. This is to ensure that the blast furnace charge remains porous enough to allow heated gas to pass through and react with the pelletized ore. Firing the pellet oxidizes the magnetite (Fe3O4) to hematite (Fe2O3)[ii]
These pellets are then shipped to the iron mills for melting into iron and, later, processed into steel. There are very high extra costs in using taconite as an ore source. The costs of mining are much higher than for DSO ores as less than half of what is mined is reducible to iron compounds and the whole process of beneficiation adds substantially to the cost. Even more importantly, the environmental and health costs of producing and using taconite ores is very high.
The crushed waste rock was dumped into the rivers and the lakes. These wastes showed up in the drinking water from Lake Superior. On April 20, 1974, the US District Court judge ruled that the drinking water and Lake Superior must be protected from the asbestos-like particles generated by this waste disposal. The Reserve Mine was forced to begin disposing of tailing wastes on the land, and to implement air pollution control equipment, instead of discharging them directly to Lake Superior. This became one of the costliest pollution prevention cases in US history.[iii]
The cost was even higher for the workers who mined and handled taconite. A 2003 study of taconite miners concluded that the most likely cause of 14 of the 17 cases of mesothelioma (cancer of the lung) among miners on the iron range was contact with asbestos or asbestos-like particles. Since that study was concluded, 35 additional cases of iron range miners with the disease have been diagnosed. Mesothelioma occurs at twice the expected rate among the population of the north-eastern region of Minnesota. The lengthy epidemiological study of Minnesota iron miners concluded in December 2014 that those working 30 years in the iron mines had a lifetime chance of having a mesothelioma of 3.33 cases per thousand people, more than double the background rate of 1.44 cases per thousand people.[iv]
The higher costs (economic, environmental and occupational) were a heavy burden on the competitivity of the industry so the import of readily available iron ores began to rise. U.S. iron production became even less competitive with the modernising of the steel-making process. The bulk of the newer steel capacity in the US has been produced using electric arc furnace (EAF) technology, which is sourced from feedstocks predominately derived from nearby scrap steel supply,
Meanwhile, US iron-ore imports have had a diminishing impact on domestic supply. In 2005, the US imported just over 12-million tonnes of iron-ore, mostly from Canada and Brazil, which accounted for 23% of domestic consumption. In 2015, this percentage dropped to 12%. Two of the biggest hurdles in the global iron-ore mining industry are transportation costs and ore quality. US iron-ore suppliers have suffered on both fronts – being far away from key seaborne Asian markets and producing essentially a high-cost pellet product. Historically, US iron-ore production has been highly concentrated among two or three large producers. In 2015, integrated steel and mining company ArcelorMittal, integrated steel producer US Steel and iron-ore mining company Cliffs Natural Resources accounted for 94% of domestic supply, mainly because of their control of the iron ore production, linked to large, integrated, steel production mills.
The concentration of steel production in the U.S. is mirrored in the international steel industry, where the market is dominated by the top three producers, BHP Billiton Ltd., Rio Tinto Group and Vale SA. However, the largest global producer of steel is China. In August 2017, China produced 74.6 million tonnes of crude steel. Not only was that a record high, it also topped the 69 million tonnes produced by the 66 other nations monitored by the World Steel Association.
According to Macquarie, China accounted for 80% of all steel growth, and 90% of all seaborne iron ore demand growth, in the years between 1980 to 2016. Australia has ben China’s major supplier of iron ore. According to data from the Australian Bureau of Statistics, the value of Australian iron ore exports to China in 1996 stood at $2.91 billion. By 2006 — one decade later — that figure swelled to $14.37 billion. Fast forward another ten years and the value soared to $53.755 billion.[v]
The next largest supplier of steel has been the expanding Indian market. In recent years, India’s crude steel production has expanded rapidly, reflecting firm economic growth and policies designed to boost the country’s manufacturing industry. Output has grown by a CAGR of 7.3% since 2010 to exceed 100mt for the first time in 2017, while production in December was sufficient to see India overtake Japan to become the world’s second largest steel producer, after China. India is likely to cement its position as the world’s second largest producer over the coming year, with steel demand in the country projected to grow by 6% in 2018. Looking further ahead, reports suggest India’s steel production is likely to double by 2030, with the country widely expected to be the largest source of global output growth over the period.[vi]
However, because of existing trade restrictions and a high tariff on Chinese steel imports the U.S. import market does not exhibit a high Chinese portion.
So, putting high tariff duties of 25% on steel imports will have very little impact on China or India but will be punitive to the industries of U.S. allies. It makes no sense and will solve few problems in restoring U.S. manufacturing jobs. In January 2018 the U.S. Department of Commerce issued " AN INVESTIGATION CONDUCTED UNDER SECTION 232 OF THE TRADE EXPANSION ACT OF 1962, AS AMENDED” which covered “THE EFFECT OF IMPORTS OF STEEL ON THE NATIONAL SECURITY” which set out the views of the U.S. steel manufacturers.[vii] This investigation demonstrated the unfair trade practices of China and made a variety of recommendations. The only problem is that, in the real world, China accounts for only 2.9% of steel imports. What was most interesting in this study was the objections made by U.S. steel product importers to the fact that there are many steel imports which are required in the U.S. steel market (shapes, forms, tubes, etc.) which are not produced in the U.S. nor are they likely to be produced. A blanket tariff will only serve to raise the price of these imports with no benefit to anyone.
The National Retail Federation's President and CEO Matthew Shay said: “A tariff is a tax, plain and simple. In this case, it’s an unnecessary tax on every American family and a self-inflicted wound on the nation’s economy. Consumers are just beginning to see more money in their pay checks following tax reform, but those gains will soon be offset by higher prices for products ranging from canned goods to cars to electronics. The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help.”[viii]
The Northwest Seaport Alliance (NWSA), a joint venture between the ports of Tacoma and Seattle, warns the move could lead to broad negative economic consequences for Washington State if other nations retaliate against these tariffs. Courtney Gregoire, Port of Seattle commission president and co-chair of the NWSA. “We support vigorous enforcement of fair trade laws and a level playing field, but this reckless approach puts too many people and industries in the economic crosshairs.” Don Meyer, Port of Tacoma commission president and NWSA co-chair. has added “Just as concerning as these blanket tariffs is the potential for retaliatory tariffs on exports of Washington agricultural and manufactured goods. As a state in which 40 percent of our jobs are tied to international trade, we are risking jobs and quality of life by levying blanket tariffs against some of our most important trading partners and opening the door to their retaliation.”[ix] The NWSA is the second-largest export gateway for overall agricultural and forest products in the U.S. The value of those exports exceeded $6.8 billion in 2016, making up 76 percent of NWSA containerized exports.
The Trade War is Ongoing, But Controlled
Moreover, this dispute is not unique in the process of regulating international trade. This international trade war has been raging since the global financial crisis in 2008-2009. The World Trade Organization (WTO) has been quite helpless in preventing the resurgence of protectionism or stopping developed countries from effectively impeding the WTO’s Doha Development Round (DDR). According to research by law firm Gowling WLG, the world’s top 60 economies adopted more than 7,000 protectionist trade measures between 2009 and 2016. It also found the US and EU mainly responsible for harmful trade policies! Since the GFC, the EU has adopted some 5,657 trade-restrictive measures, while the US has introduced 1,297 measures ‘harmful’ to international trade.
According to the WTO, G20 economies had implemented 1583 restrictive trade measures by October 2016 compared to around 300 eight years before, i.e., about 1300 more. Between mid-October 2015 and mid-May 2016, G20 economies applied 145 new trade-restrictive measures – averaging almost 21 monthly, up from 17 between mid-May and mid-October 2015. An earlier WTO report with wider geographic coverage found 2,557 new trade restrictions by October 2015, up 17% from the previous year. Countries have increasingly resorted to discretionary, non-transparent, non-tariff barriers (NTBs), instead of more traditional, transparent trade barriers such as tariffs. These NTBs include subsidies, domestic content requirements, health and safety requirements, state-owned enterprises and public procurement. They involve much discretion, and greatly affect developing country exports.[x]
The main point of this is that the Trump blanket tariff imposition is an open trade barrier announced baldly in violation of the WTO rules and so outside the customs and practices of trade disputes and that the WTO will, without doubt, find the U.S. in breach of WTO rules. That will open the U.S. to a raft of retaliatory measures on goods traded to the U.S. and imported from the U.S. without benefit of any protection or negotiation by the WTO. That is very foolish.
Manufacturing and Jobs
While there have been many jobs lost in the Rust Belt of the U.S. by the modernisation of the coal, iron and steel industry there is a different perspective on this development which has not been discussed. The history of the coal, iron and steel industry has demonstrated the indifference and complicity of the mine and mill owners in the destruction of the occupational health and safety of the workers in them. Mining coal, iron ore, and operating liquid iron and steel plants has killed and maimed many of those engaged in that industry and destroyed the towns, villages and cities in which they lived. It wasn’t just the health effects of working taconite ores which brought about the restrictions on its use. It was also the terrible health effects on the miners, their communities and the environment. Mining coal and iron, operating blast furnaces and transporting these substances has been a stain on the industrial landscape since its earliest days. Progress in mining could be judged by the worsening condition of the miner’s and blast furnacemen’s lungs. There were many more miners and iron and steelworkers killed by the dust than in any mining disaster that occurred with such great regularity. Black lung, pneumoconiosis and mesothelioma were regular effects of working in these industries. I was writing a study for the International Metalworkers’ Federation in 1978 “Health Hazards in the Iron & Steel Industries” and was in contact with the Mineworkers’ Union. They were having trouble getting compensation for a number of miners in Harlan County, Kentucky. They had shown the X-rays of the lungs of some of the miners to the company doctors. The doctors looked at the X-rays and stamped them “Normal”. They took the X-rays to the court to seek compensation. The judge asked the doctors how they could stamp “Normal” on lung X-rays which all the expert witnesses said showed Black Lung and mesothelioma. The doctor said, “Well around here, that is normal.”
Yes, many of these jobs are gone. There are no more miners in Harlan or Muehlenburg counties, Steel mills have shut around Pennsylvania and the Midwest. I, for one, do not miss their passing. When I see a ton of steel being imported I think of the lives and health of the workers who are not breathing in the dust of the ores or inhaling the fumes or suffering the high heat of the steel mills. The solution to the Rust Belt is not giving the workers the right to die of occupational diseases again or living in polluted and toxic environments. It is using the savings made on imports to re-educate the workers in new technologies and non-toxic jobs. The problems of the mines and mills are also the problems of the environment. I bemoan the fact that many of the unions who are rejoicing at the Trump tariff initiative are deaf to cries for improved health and safety at their jobs’ that the Trump reorganisation of OSHA has left too few inspectors to protect those whom they are engaged to protect; that Southern states are attracting the polluting industries to their area where worker protection is at its lowest.
So, there is more to the question of “restoring manufacturing jobs” than just weighing up of the economic and political consequences of the tariffs. The occupational health and environmental concerns should be an active part of the discussion.
[i] Ramanaidou, E. R. and Wells, M. A. (2014). 13.13 - Sedimentary Hosted Iron Ores. In: Holland, H. D. and Turekian, K. K. Eds., Treatise on Geochemistry (Second Edition). Oxford: Elsevier. 313-355. doi:10.1016/B978-0-08-095975-7.01115-3
[ii] "Taconite", Minnesota Department of Natural Resources
[vii] "U.S. Department of Commerce investigation pursuant to Section 232 of the Trade Expansion Act of 1962, into the effect of imports of steel mill products on the national security of the United States.", U.S. Dep't of Commerve, !/18
[viii] "Trump's Steel and Aluminum Tariffs Could Harm Ports, Consumers" MarEx 2018-03-08
[x] Anis Chowdhury and Jomo Kwame Sundaram, "Trump’s Trade War in Perspective", IPS 12/3/18