SMA: Biden Should Go Big on Infrastructure, Keep Section 232

“With the Senate being 50-50 as it appears it will be, that is not a lot of margin for error,” Bell said. “This may be a time where being a moderate on either side of the aisle is back in vogue.”

Infrastructure – Go Big!

One issue on which moderates from both sides might agree is infrastructure spending. SMA hopes the Biden administration might consider a long-term plan worth $1 trillion or more.

“With the Senate going to the Democrats, that might help him in many ways,” Bell said. “That could motivate Biden to really go big and make infrastructure a cornerstone of his ‘Build Back Better’ plan.”

Biden will be inaugurated on Jan. 20. “Build Back Better” is the president-elect’s plan for reviving a U.S. economy hit hard by the Covid-19 pandemic.

The incoming president has “bigger fish to fry” in his first days in office because of the virus crisis and wider societal unrest, said Bell, who had left his office in D.C. early on the day he spoke with SMU because a violent, pro-Trump mob had stormed the Capitol. But infrastructure spending could help with the latter issue, he suggested.

“Infrastructure investment has a tremendous effect on the American taxpayers’ psyche. When people see roads being built, bridges being repaired, airports being upgraded … they can see their tax dollars at work,” Bell said. “It’s something tangible that people can understand.”

And with Senate control hinging on Vice President Kamala Harris’s tie-breaking vote, some items on the progressive agenda — particularly when it comes to climate change, regulations and taxes — might be pushed to the backburner, he said.

“We really need to be in recovery mode, not regulatory mode, and I would like to see environmental policy that acknowledges the tremendous sustainability footprint of domestic steelmakers,” Bell said.

That means the Biden administration could craft policy that considers the lower carbon intensity of the EAF steelmaking that characterizes most U.S. output compared to the greater emissions associated with the integrated route that characterizes steel production in most of the rest of the world. The U.S. could also apply a tariff to offset emissions from vessels used to ship steel across the Atlantic and Pacific oceans to the U.S., he said.

But SMA sees little indication that a carbon border tax, like that under consideration in the European Union, is coming to the U.S. anytime soon. “There are a ton of think tanks, consultants, folks like me and (SMU) talking about it,” Bell said. “But I don’t hear enough from people who could actually make it happen.” 

Section 232 – Keep It!

Instead the U.S. steel industry is likely to remain protected for the time being by Section 232 tariffs and quotas, which were justified on national security grounds. That’s partly because Biden has indicated he wants to carefully review domestic trade and tariff policy before making any changes, Bell said.

It’s also because the overcapacity — not just in terms of overproduction in China but also in India, Turkey and Southeast Asia — that Section 232 was designed to address remains in place. And even in the EU, where some sources have speculated that Section 232 could be eased or lifted, certain government subsidies and state-sponsored expansions remain problematic, he said.

“I don’t see anything sudden happening in terms of 232,” Bell said. “I don’t think it would be wise to do away with 232 with the stroke of a pen, and I don’t think Biden is going to do that.”

The United Steelworkers (USW) union’s support for Biden shouldn’t be forgotten either. “He was endorsed by the USW, they were a big part of his ground game and they support 232 continuation as well,” he said.

One concern is the use of “General Approved Exclusions” (GAEs) in a perhaps misguided attempt to streamline the Section 232 exclusion process, something that could lead to entire product categories of steel becoming exempted from tariffs. “That rule needs to be revoked” because leaving it in place as is could lead to a “surge of imports,” Bell said.

The problem: The GAE loophole occurred under the Trump administration’s watch. But Trump probably doesn’t have enough time left in office to close it, he said.

Also on the trade front, SMA hopes the Biden administration will support provisions in any infrastructure bill stipulating that steel used in those projects be melted and poured in the U.S. “Worrisome to me is the continued assault on ‘Buy America’ and ‘Buy American’ by companies that want to circumvent the system and use American taxpayer dollars to buy foreign steel,” Bell said. 

Scrap – a National Security Issue?

Looking further down the road, the U.S. might need to consider protections for the scrap needed to make that melt. “When you look at all of the new capacity that is coming online, essentially all of it is EAF. And I think that when you look at the different input costs for EAF steel producers, scrap is a significant one — and increasingly prime scrap is becoming harder and harder to get,” Bell said.

Big River Steel last year began the process of doubling the capacity at its EAF mill in Osceola, Ark., through the addition of a second EAF and caster. Steel Dynamics Inc. (SDI), meanwhile, is building a new flat-rolled EAF mill in Texas. And Nucor and North Star BlueScope — both EAF steelmakers — also have expansion plans slated for 2021.

Scrap in the U.S. might be abundant. But it is not necessarily cheap. The issue came into stark relief last spring when North American automakers temporarily halted output in response to Covid-19 — and stopped generating prime scrap in the process. The result: Prices for busheling scrap surged even as flat-rolled steel prices crashed – a trend that squeezed profit margins for EAF steelmakers.

“It’s their (automakers’) garbage and our (EAF mills’) gold,” Bell said of prime scrap. “And if it gets to a point where it’s a strategic or national security issue where steel mills can’t produce, we need to look at policy solutions to address that.”