Lewis on trade: To govern is to choose

Interested parties, in and out of government, raise their voices in support of the goals they consider most important. One trend I’ve seen in recent years is the tendency to claim that a particular goal (e.g., reducing global warming to 1.5 degrees Celsius, securing the border, etc.) is so important that it subordinates all other considerations.

The news cycle seems to resonate with every protest, or statement by political candidates. All these claims are challenged by prerogatives that some other issue is critical to the survival of humanity.

When faced with these pressures, democracies can be paralyzed. A candidate who hopes to earn a majority of the vote needs to pay attention.

Paradigms to consider

• Climate change advocates want to reduce or eliminate fossil fuel use, starting now and resulting in zero net emissions by 2050, such as massively increasing the use of renewable fuels. On the other hand, solar panels, wind turbines, and electric vehicles can lead to environmental harm.
• Another is the push to secure the southern border. To reduce or eliminate illegal immigration, Republicans are holding up critical assistance to Ukraine. When two objectives, both of which may be laudable, clash, what’s a leader to do?
• A third example is the proposed acquisition of U.S. Steel by Nippon Steel. President Biden on Thursday signaled his opposition to the deal.

Wherein lies the rub?

The President said that it is “vital” for the “iconic” U.S. Steel to maintain its status as a US-owned and operated company. He did not say why it was “vital.” As he must know, US Steel is hardly the economic and industrial colossus that it was when created in 1901.

The United Steelworkers (USW) union has come out strongly against the acquisition. Several members of Congress have backed this stance. And now, President Biden himself, who may be able to block the deal, has added his voice to the chorus. So has former President Donald Trump.

On the other hand, the US economy that relies on steel does not make steel but buys it. The purchases exceed the productive reach of domestic producers. Imports of steel are “vital” because the domestic industry does not make enough and hasn’t for several decades.

Nippon Steel, a far larger producer than U.S. Steel, has the wherewithal to make the Pittsburgh-based steelmaker a more effective competitor. U.S. Steel as a stand-alone company is less likely to be able to raise the capital to increase production or modernize its plants. So, some other company may need to acquire the steelmaker. Who is out there?

What else could go wrong?

If we have the critical imperative of keeping U.S. Steel American-owned, a rather remarkable assertion (there are numerous examples of steel mills being acquired by foreign companies—Arcelor Mittal, National Steel, AK Steel, and Japan is not an adversary of the United States), the only alternative might be Cleveland-Cliffs (joined by the USW).

But that would not be good for competition in such industries as food packaging, electrical equipment, or automotive production (estimates are that U.S. Steel and Cliffs control about 80% of the automotive market for steel sheet). Antitrust issues!

This one seems a pretty easy choice. But the President appears to have chosen the less attractive alternative. Why? Politics, that’s why.

But there’s more to solve

Another choice: between modernizing the electric infrastructure as electricity demand is surging; and reducing (or, to some, eliminating) reliance on fossil fuels for electric generation. For years, our electric grid has been losing its efficiency. Power lines are old and becoming obsolete. Transformers are in short supply. New generating capacity must be paired with improved transmission.

Electricity does not travel well. To send it over long distances, current technology wires are necessary, with current technology. Currently, high-voltage lines sending electricity to end users lose an average of 5 percent of the electricity generated. Better power lines will cut this number.

In the meantime, efforts to curtail fossil fuel use because of climate change are pressuring utilities to close power plants relying on fossil fuels. And, in conflict with these efforts, electricity demand is surging.

Much of the increase is related to new data centers, which are in turn caused by the explosive rise in AI. The demand to shutter fossil fuel generating capacity runs headlong into building the tools for the data revolution. Which will it be?

Is this another chance for politics to provide the answer? This one is harder to predict. The forces to choose climate are powerful, so are the forces for increased data use and storage.

And then there’s harmony

War and peace is a third example of this phenomenon. Ukraine funding is held up because efforts to secure the southern border are viewed by some Republicans as inadequate. President Biden says that the Senate border bill is enough, while Donald Trump supports the Republican HR 2. Meanwhile, Ukraine (and Israel) funding are stuck.

Being optimistic by nature, I believe these impasses will be resolved (or papered over). But resolution in a presidential election year, when the polls are within the margin of error, is extremely difficult.

Will resolution come only after an action-forcing event? I don’t know, and I’m not predicting any.

Editor’s note: This is an opinion column. The views in this article are those of an experienced trade attorney on issues of relevance to the current steel market. They do not necessarily reflect those of SMU. We welcome you to share your thoughts as well at info@steelmarketupdate.com.