| 2023: | 93 million tons |
| 2022: | 96.9 million tons |
| 2021: | 98.9 million tons |
| 2012-2017 average: | 100 million tons |
* U.S. Geological Survey, annual ‘apparent consumption’’
Six years later, how have Trump-era metals tariffs worked out? Did the U.S. wind up making more steel or aluminum? If so, did the tariffs damage metal-users like auto companies or machinery makers? And if so, how did they respond? Some perspectives on these questions, drawn from the U.S. International Trade Commission’s modeling estimates along with recent data on metal output and consumption:
The Basics: In the first week of March 2018, the Trump administration decided to impose tariffs of 25% on most imported steel products, and of 10% on most imported aluminum. These were added on top of pre-existing tariffs, mostly in the range of 2% to 5.7% for aluminum and 0% to 3% for steel. (Note: The pre-2018 rates oversimplify, as many steel and some aluminum products also have additional “anti-dumping” and “countervailing duty” tariffs. See below for a bit more.) The legal basis was a little-used U.S. trade law clause — “Section 232” — dating to 1962, which authorizes presidents to indefinitely “adjust” imports on grounds of national security. The Department of Commerce, which administers this law, argued for limiting imports in two Jan. 2018 reports on the grounds that ready access to these metals has security implications and rising imports had cut U.S. output. The resulting tariffs have mostly stayed in place since, with changes such as the substitution of quotas for tariffs for Korea and the EU and exemptions for Canada and Mexico.
What has happened since? Abstract economic logic suggests that a large new tariff should create a four-phase chain of events something like this:
(i) Tariffs raise prices for the relevant imported good, in this case the two metals.
(ii) U.S. buyers — in this case, industries such as machinery and auto factories, construction firms, and canning industries — shift purchasing to local varieties. Imports therefore fall and the “domestic” share rises.
(iii) As “consumer” industries pay more for the good, they lose some competitiveness vis-à-vis imports at home and in export competition abroad, and therefore risk also losing some production and employment.
(iv) They respond by trying, to the extent possible, to use less.
The Commerce Department’s 2018 reports admitted that phase (iv) was theoretically possible, but said it probably wouldn’t materialize in reality because strong GDP growth and higher federal spending on metal-using products would offset higher prices. Thus capacity utilization would rise, and U.S. mills and smelters would grow more stable and profitable. Here’s their steel prediction:
“By reducing import penetration rates to approximately 21 percent, U.S. industry would be able to operate at 80 percent of their capacity utilization. Achieving this level of capacity utilization based on the projected 2017 import levels will require reducing imports from 36 million metric tons to about 23 million metric tons. If a reduction in imports can be combined with an increase in domestic steel demand, as can be reasonably expected [with] rising economic growth rates combined with the increased military spending and infrastructure proposals that the Trump Administration has planned, then U.S. steel mills can be expected to reach a capacity utilization level of 80 percent or greater. This increase in U.S. capacity utilization will enable U.S. steel mills to increase operations significantly in the short-term and improve the financial viability of the industry over the long-term.
In sum, the administration’s hope and prediction was that the U.S. would be producing more metals, since the policy “would enable U.S. steel producers to operate at an 80 percent or better average annual capacity utilization rate based on available capacity in 2017.” The analogous goal for primary aluminum was a rise in production to 1.45 million tons, and of smelter capacity utilization to 80%.
Phase i: Imports Fall, 2018-2019: U.S. statistical agencies such as the Census and the U.S. Geological Survey publish regular data on metal trade, use, and production. The trade figures show that after the tariffs went on in early 2018, imports of metals did in fact drop. Steel imports fell from the 36 million tons mentioned in the Commerce report to 25 million tons in 2019, quite close to their 23-million-ton goal. Aluminum imports went down from 6.2 million tons in 2017 to 5.3 million tons in 2019. Both declines seem to have lasted, though with some volatility and fluctuation; 2023 imports were 25 million tons for steel and 4.8 million tons for aluminum.
Phases ii & ii: Metal Output Up But “Downstream” Industries Contract, 2020-2021: The U.S. International Trade Commission’s formal five-year report last March estimated that in 2020 and 2021, the tariffs had raised U.S. steel and aluminum output by about $2.2 billion, as compared with a hypothetical case in which the administration did not impose tariffs. Meanwhile, they cut the output of U.S. metal-using manufacturers (mainly machinery, auto parts, and tools and cutlery) by about $3.5 billion. So overall, ITC’s estimate was that between 2017 and 2021, the tariffs had increased the metals production relative to a no-tariff scenario, but left the overall U.S. manufacturing sector a bit smaller.
Phase iv?: Output and Metal Use/2023: No such formal estimate yet exists for 2022 and 2023. However, according to the U.S. Geological Survey’s annual “Mineral Commodity Surveys”, by 2023 Americans were using less steel and aluminum than they had before 2018. These reports show that from 2012 to 2017, the U.S. economy used an average of 100 million tons of steel and 5.23 million tons of aluminum per year. (Using USGS’ “apparent consumption” metric.) The 2023 U.S. economy, though about 10% bigger in constant, inflation-adjusted dollars than that of 2017, used only 93 million tons of steel and 4 million tons of aluminum — respectively 7% less and 20% less than before. Put another way, where in 2017 the U.S.’ $20.2 trillion GDP used on average 5100 tons of steel and 290 tons of aluminum per real $1 billion in output, the $22.4 trillion 2023 economy needed only 4,156 tons of steel and 179 tons of aluminum per $1 billion.
Thus, though imports remain close to the levels the Commerce Department’s 2018 reports envisioned, U.S. metal production has fallen back to pre-tariff levels. According to USGS, steel mills poured out 81.6 million tons of metal in pre-tariff 2017, and got up to 87.8 million tons in 2019. In 2022, though, they were back to 80.5 million tons; in 2023, a slightly lower 80.0 million. Primary aluminum smelters likewise, having raised output from 741,000 tons in 2017 to 1.09 million tons in 2019, had fallen back down to 750,000 tons in 2023. Nor did the Department’s prediction of higher capacity utilization prove realistic. The Federal Reserve’s “FRED” statistical service reports 74.2% in 2023, statistically about the same as 2017’s 73.6%. And actual capacity is down from 111 million to 104 million tons in steel, and from 2 million to 1.36 million tons in aluminum.
Analysis of this should be a little cautious, as metal use (especially in aluminum) can be volatile. But it’s unusual to see a sustained decline in use during periods of strong economic growth like that of 2021-2023. And it may be that (setting aside international reactions and retaliations, and impacts on metal users like the auto parts and machinery factories) we are now in Phase (iv), and the tariffs’ main current effect is “lower use of metals.” Not really what the DoC was advertising six years ago.
Analysis:
USITC analysis and estimates of the ‘232’ tariffs (see pp. 124-133).
Academics Kadee Russ & Lydia Cox forecast in February 2018 that metals tariffs could raise metal output, but likely at the cost of jobs and production in other manufacturing industries.
… and they look back from 2021.
Data:
FRED (“Federal Reserve Economic Data”) has steel capacity utilization trends from 1970 forward.
The U.S. Geological Survey’s mineral commodity statistics have annual reports on steel and aluminum output, imports and exports, capacity, and employment back to the early 1990s.
… and for real enthusiasts, a spreadsheet with data back to 1900.
And references:
The “Section 232” site for the Commerce Department’s Bureau of Industry and Security, with links to the 2018 reports on steel and aluminum.
… or direct to the 2018 steel report.
… and the 2018 aluminum report.
And some tariff explanation:
Steel and aluminum typically have “MFN” tariffs in ranges from 2% to 5.7% for aluminum and from 0% to 3% for steel. Real-world policy is complex, though, as steel in particular is often also covered by “anti-dumping” and “countervailing duty” tariff penalties outside the regular tariff schedule. The Commerce Department reports that of the 685 AD and CVD “orders” currently in place, 309 cover steel and steel products, and a more modest 32 cover aluminum.
Here’s the U.S. tariff schedule, with steel in Chapters 72 and 73, and aluminum in Chapter 76.
And the Department of Commerce’s tally of AD and CVD “orders” by country, industry, date, and product.
Ed Gresser is Vice President and Director for Trade and Global Markets at PPI.
Ed returns to PPI after working for the think tank from 2001-2011. He most recently served as the Assistant U.S. Trade Representative for Trade Policy and Economics at the Office of the United States Trade Representative (USTR). In this position, he led USTR’s economic research unit from 2015-2021, and chaired the 21-agency Trade Policy Staff Committee.
Ed began his career on Capitol Hill before serving USTR as Policy Advisor to USTR Charlene Barshefsky from 1998 to 2001. He then led PPI’s Trade and Global Markets Project from 2001 to 2011. After PPI, he co-founded and directed the independent think tank ProgressiveEconomy until rejoining USTR in 2015. In 2013, the Washington International Trade Association presented him with its Lighthouse Award, awarded annually to an individual or group for significant contributions to trade policy.
Ed is the author of Freedom from Want: American Liberalism and the Global Economy (2007). He has published in a variety of journals and newspapers, and his research has been cited by leading academics and international organizations including the WTO, World Bank, and International Monetary Fund. He is a graduate of Stanford University and holds a Master’s Degree in International Affairs from Columbia Universities and a certificate from the Averell Harriman Institute for Advanced Study of the Soviet Union.
