Leibowitz on Trade: Measuring the Steel Industry’s Importance

The amount of attention paid to these external effects should influence actions, both private and public. It usually does, but frequently the external effects are not given sufficient attention.

The first question we should consider is whether the steel industry is critical enough to help it despite the negative effects on the rest of the economy.

How important is the steel production industry to the U.S. and global economy and how can we objectively measure that importance? This week’s column will not definitively answer that question—but perhaps some ideas about its importance would help generate constructive discussion and debate.

One obvious truth is that steel production, however important it is, is less important to the United States economy than it once was. Steel is still a basic building block of many industries, but there are so many more materials available than a couple of generations ago that the importance of steel is clearly diminished, both economically and militarily.

In the 1950s, the steel industry directly employed over 700,000 workers and supply industries employed many more. Iron ore production is largely used by the steel industry, although there are other uses too. Steel production accounted for over one million U.S. jobs back then, including a supplying industry such as iron ore.

According to the American Iron and Steel Institute, which has no reason to understate the economic impact of steel production, the number of jobs in 2017 was about 215,000 (not counting 170,000 processing and distribution jobs, which I will discuss in a moment). This represents a decline of about 800,000 jobs, or 80 percent, from 70 years ago. In the meantime, the U.S. labor force increased from 60 million in 1950 to about 160 million in 2020. Steel’s share of the labor force has declined from about 1.7 percent to 0.01 percent, a slip of over 90 percent.

As in all statistical analysis, drawing the line between steel-producing jobs and steel-consuming jobs is an inexact science. From my point of view, steel processing and distribution is not totally dependent on processing and distributing domestically produced steel—therefore, the 386,000 jobs that AISI counts as “steel industry” jobs overstates the real number. Steel distributors and processors routinely move and process, respectively, steel which is produced outside the U.S. as well as inside. Next week, I will look at the relative size and importance of steel-using industries compared to steel producers. Both are important—but increasingly the steel-using sector has a greater and more critical role in the economic strength of the U.S. compared to the steel-producing industry. Economy-wide, the industries that make products containing steel employ more than 60 times the people involved in steel production.

Another measure of the change in the importance of steel production as a driver of the U.S. economy is the production of steel. In 1950, net shipments of steel were about 72 million short tons, a number that is only 20 percent higher in 2019 (the peak year for steel production was 1969, about 141 million tons). Domestic shipments plus exports, less imports (“apparent domestic consumption”) was about 71 million tons. The U.S. was a net exporter of steel until 1959, the year of a major steel strike that paralyzed the U.S. economy for more than four months, and users turned to imports for the first time. Now, steel imports are more than 20 percent of apparent consumption.

The U.S. share of global steel production has also changed dramatically. In 1950, the United States was the only major country that was undamaged by World War II. Germany, Japan, China, France, Italy, the UK and the Soviet Union were all devastated by the war. U.S. steel production in 1950 was nearly half of world production. In 2019, by contrast, U.S. production at 87 million tons was about 4.8 percent of global production, which exceeded 1.8 billion tons for the year. China produced about one billion tons in 2019, according to Chinese government statistics.

Based on the volume and value of global steel production, the United States, which is now the world’s fourth largest steel producer (China, Japan and India outproduce the United States and the European Union far outpaces the U.S. as well), is not in a position to dictate to the rest of the world how much steel to produce. While there may be “global overcapacity” in steel production, the world cannot rely on the United States as a significant supplier of steel to the world. We are simply too small.

An important question remains—the policy choices regarding the domestic steel industry are clearly in need of new reflection. Former choices no longer can claim to solve the problem or even make it more manageable. The Trump policy of unilaterally imposing import restrictions on trading partners is plainly not making the grade.

Next time, we will explore the importance of steel-consuming industries and the transportation, distribution and processing of steel and how those sectors fit into the mix.

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