Leibowitz: Weighing Steel Producers vs. Steel Consumers

I will explore three areas: the relative importance of the two sectors in the creation and preservation of American jobs; the value added to the economy by steel production and steel-consuming industries; and, perhaps most important, the degree of interdependence between those two sectors. While other measures might be appropriate, these three seem most relevant to me.

Jobs

Everyone knows there are many more jobs in steel-consuming industries than in steel production. That disparity has increased in recent years, in part due to the dramatic improvements in productivity in steel production. Twenty years ago, several analyses concluded that the number of steel-using jobs in the U.S. economy was 40-60 times the number of jobs in steel production. In 2018, on the eve of the Section 232 tariffs, the ratio was pegged at 80:1. By that measure, policy choices to protect or enhance steel production may hurt job creation or retention in industries employing many more workers. The Section 232 tariffs, according to virtually all studies conducted outside the steel production industry, cost many more jobs than they saved.

The job losses are due to higher prices for steel that made steel-using industries less competitive, leading to increased imports of steel-containing products and loss of export markets to U.S. firms.

Value Added

Domestic steel production in the United States in 2019, the last year in which the pandemic did not devastate the economy, was about 88 million metric tons. The total value of production is not so easy to estimate. Based on several estimates, the unit value of steel produced in the U.S. in 2019 was about $625 per metric ton. Based on that admittedly speculative price level, aggregate domestic production value was about $55 billion, or about 0.2 percent of GDP.

The production value of products containing steel is even harder to discern—but let’s take the five largest steel-consuming industries: construction, automotive and transport, energy, packaging and appliances.

Construction alone was 4.1% of U.S. GDP and GDP in 2019 was about $21.4 trillion. Thus, construction’s share was $877 billion, more than 15 times steel production. Manufacturing in total, which includes energy, transport and automotive, and appliances, was much bigger, at about $2.36 trillion, of which steel’s $55 billion was about 2.3 percent. It is evident that steel-using industries in the aggregate are a much greater share of GDP than steel production. Any policy choice to aid steel that hurts downstream industries will therefore likely do more harm than good for GDP as well as jobs.

Interdependence

This brings us to perhaps the most important factor, that of interdependence of steel users and steel producers. If national defense is a factor, this is that category where it is most relevant. Obviously, preparation for war must be a consideration. If the steel industry were to disappear, and a global conflict ensued that isolated the United States from foreign sources of steel, this would present a crisis. That was a major finding of the Commerce Department report on steel that led to the Section 232 tariffs and quotas.

That connection, however, is not logical under current conditions. First, the U.S. steel industry is not threatened with total annihilation, despite the claims of some. The EAF sector of the industry is vibrant and globally competitive. It also accounts today for more than two-thirds of domestic production. Thus, the focus of policy choices must be on the segment of the steel industry that is in the most trouble—the integrated (blast furnace) segment.

There is simply no evidence that the domestic steel industry will disappear any time in the foreseeable future, or that current import supply would be cut off even if it did.

This is not to say that steel has no problems. What it does strongly imply is that the interdependence between domestic steel production and consumption is not a life or death issue, which further implies that steel production can only be preserved if steel users sacrifice their own competitiveness. Indeed, if that trade-off continues for very long, domestic steel producers will lose their customer base, which is hardly a prescription for long-term prosperity.

Steel producers and consumers in the United States are mutually interdependent. Government policy must recognize the need to consider both sectors before ringing the fire alarm. Both must prosper—steel production and consumption is not a zero-sum game. Some steel users vitally need imports. Rerollers on the West Coast provide one example, because there are no major steel furnaces west of the Rocky Mountains, a condition that has persisted for decades.

Conclusion

Steel-using industries clearly constitute a much larger share of the U.S. economy and jobs than steel production. But neither can prosper in the long run without the other. Fortunately, there is no danger that steel users will have to do without domestic steel production in the foreseeable future. The government should use the tools for foreign policy and trade negotiations to make sure that import sources will remain available and that other countries are encouraged to deal with oversupply problems, in partnership with the U.S. I do not see a need to play the “hunger games” with steel policy—but if we did, there is no question that downstream steel users are more important to the future of the country.

The Law Office of Lewis E. Leibowitz

1400 16th Street, N.W.
Suite 350
Washington, D.C. 20036

Phone: (202) 776-1142
Fax: (202) 861-2924
Cell: (202) 250-1551