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Why Trump’s steel tariffs are now Biden’s political headache

CONSHOHOCKEN, Pa. — The century-old steel processing plant in this Philadelphia suburb stretches three-quarters of a mile along the shores of the Schuylkill River. An imposing complex of black-walled buildings, it can churn out a half-million tons of steel per year when operating at full capacity.

But years of tepid demand for American-made steel have diminished the mill, which is most known for producing high-strength steel the military needs in wartime. Kameen Thompson, the president of the local United Steelworkers union, says the plant is now hiring workers and anticipating fresh investment largely due to a pivotal policy: former President Donald Trump’s tariffs on foreign-made steel and aluminum.

Those controversial duties are still in effect and creating a political quagmire for President Joe Biden. Most business groups detest them as an unnecessary financial burden as they grapple with supply-chain shortages and rising inflation.

The European Union wants the tariffs gone, too, and is ramping up pressure on Biden to lift them. But scrapping the tariffs entirely, even for Europe, without installing alternative protections for U.S. steel producers risks angering union voters like Thompson ahead of the 2022 elections.

“I’m pretty sure that our union leadership is telling him the right thing to do is to make our industry stronger and better,” Thompson said in an interview. “If he goes against that, then it has to be a very good reason why.”

Commerce Secretary Gina Raimondo and U.S. Trade Representative Katherine Tai are trying to devise a trans-Atlantic plan to address the decades-long challenge of China undercutting domestic industries by pumping its excess steel into the global market at cheap prices. They face a self-imposed deadline to reach a deal by the end of the year.

As a result, some steelworkers are concerned that rushing into an agreement with Europe could come at the expense of domestic steel producers and their union workers, whose support for Biden in key swing states helped propel him to the White House.

“The Biden administration understands that simply lifting steel tariffs without any solution in place, particularly beyond the dialogue, could well mean layoffs and plant closures in Pennsylvania and in Ohio and other states where obviously the impact would be felt not only economically but politically,” said Scott Paul, president of the Alliance for American Manufacturing.

The political calculus for Biden

From his first days in office, Biden has sought to dismantle many of his predecessor’s policies toward the world beyond U.S. borders. He’s put particular emphasis on reasserting the U.S. as a global force keen to collaborate with — not chastise — like-minded nations on policies ranging from climate change to global health.

But he hasn’t touched Trump’s tariffs on steel and aluminum imports, and members of his Cabinet have gone so far as to praise them. Pressure from unions is a key reason why.

Ultimately, Biden must decide whether the good of the few — the 137,200 or so steel and ironworkers in the country last year — outweighs the good of the many — 6.5 million workers, by one estimate, who need steel or aluminum for the goods they make. A number of economists warn that steel tariffs could imperil more jobs than they preserve.

“On one level, the steelworkers don’t represent a huge number of voters because there’s just not that many of them, but they are important voters in important states,” said Todd Tucker, director of governance studies at the Roosevelt Institute, a progressive-leaning think tank.

“If you look at the geography of where steel production is most prevalent, it’s in a few congressional districts in Ohio, Pennsylvania and a few other places that are going to be important, certainly in presidential years, but some Senate races in 2022,” Tucker added.

Biden’s blue-collar roots have long been central to his political identity. He leaned on them during the 2020 campaign in swing states like Pennsylvania, Michigan and Wisconsin as he made promises to bolster U.S. manufacturing and rebuild an economy blighted by the coronavirus pandemic.

Biden told the United Steelworkers in a campaign questionnaire that he would support steel and aluminum tariffs until global excess capacity is addressed, but he also pledged to review Trump’s “short-sighted and destructive” approach to tariffs. He slammed his then-opponent for failing to address China’s trade practices and alienating foreign allies.

“I will use tariffs when they are needed, but the difference between me and Trump is that I will have a strategy — a plan — to use those tariffs to win, not just to fake toughness,” Biden told the union.

His administration is now eager to show it’s delivering. Biden earned praise from labor groups for signing an executive order just days after taking office that prompts federal agencies to buy more U.S. products. He touted those tighter rules in a speech in Pennsylvania’s Lehigh Valley this summer, with American-made Mack Trucks parked behind him.

“I’m here to talk about a commitment that’s sacred to me and central to our efforts to keep things moving,” Biden said. “It’s a straightforward solution: Support and grow more American-based companies, put more Americans to work in union jobs, strengthen American manufacturing, and secure critical supply chains.”

The bipartisan infrastructure bill that has cleared the Senate would be another win for Biden with labor unions that were disappointed Trump did not fulfill his infrastructure promises. The $550 billion package would unleash billions of dollars for construction-heavy projects like roads, bridges and rail, with U.S. manufacturers and steel producers poised to benefit.

And the infrastructure package, if it passes, could provide some political cover for Biden if his decision on tariffs ultimately disappoints steelworkers.

Thompson said Biden’s campaign-trail promise to invest heavily in infrastructure and promote the U.S. manufacturing sector resonated with his members. But those same members are sensitive to unfair trade practices from foreign steel producers in China and Europe, where industry groups and labor unions argue overcapacity is also a problem.

Since joining the Conshohocken plant in 2005, Thompson has survived round after round of layoffs. Headcount fell from about 400 some 16 years ago to about 80 by the time Trump’s tariffs were implemented in 2018, Thompson said. Staffing is now up to 115.

Ohio-based Cleveland-Cliffs, which bought the site last year, plans to hire dozens of additional workers and replace dilapidated equipment. Those investments are part of a yearslong growth plan that Cleveland-Cliffs has undertaken, which includes the opening of a $1 billion iron facility in Toledo, Ohio, earlier this year.

“If [Biden] just takes them off and lets them just go cowboy on us and just roll in here, then that’s not a good look,” Thompson said. “And I’m pretty sure my members, and the top members in USW, would not be happy with that.”

In a letter sent to Biden on Friday, steel industry groups and labor unions outlined their conditions for any deal the administration reaches with Europe to replace the tariffs. The American Iron and Steel Institute, Steel Manufacturers Association and United Steelworkers advocate for automatically reimposing “stringent, effective tariffs” if there’s an influx of steel imports from Europe, a surge which “would destroy good paying jobs, undermine our industry, and increase the carbon footprint of U.S. steel consumption.”

The fight over jobs

Biden’s most senior officials haven’t just maintained Trump’s tariffs to date — they’ve lauded them. In separate instances, both Raimondo and Tai have described the tariffs as “effective” in bolstering the U.S. steel industry.

“We cannot simply say, ‘We’re going to get rid of the tariffs,’ because we need to protect our steel industry and those workers,” Raimondo said in a Bloomberg Television interview. “Simply to say, ‘no tariffs,’ is not the solution.”

Those comments give steel unions and labor-friendly groups confidence that the administration has paid heed to their lobbying blitz. They argue the tariffs have prompted more manufacturers to buy U.S.-made steel, causing a boost in domestic production and putting the industry on more level footing with foreign rivals.

The Trump administration concluded the tariffs would help steel mills operate at at least 80 percent capacity annually and achieve long-term economic viability. Data assessed monthly by the Federal Reserve Board show the percentage of used production capacity ticked upward after Trump’s tariffs in March 2018 but has not stayed consistently above 80.

The rate hit 83.4 percent in January 2020, the highest monthly figure since 2008, before taking a pandemic-induced tumble. As of July 2021, the rate had climbed back to that level. Paul said it will need to stay there to bring idle plants online and spur investment.

“The tariffs have had, I would say, very modest impacts on steel-consuming industries and have had the desired results so far for the domestic [steel] industry,” he said.

Those steel-consuming industries don’t see it that way. While U.S. steel producers have been cranking out products in larger volumes, a much broader swath of companies complain that the resurgence has come at their expense and done more harm than good to the U.S economy.

“When I hear comments like Secretary Raimondo’s comment that these policies have been effective in increasing production in the U.S., you really have to conclude that that’s looking at the production effect on a very, very narrow sector,” said Rufus Yerxa, president of the National Foreign Trade Council.

“And if you were looking at what’s in the overall interests of manufacturing as a whole, you’d reach a vastly different conclusion,” he added.

Yerxa also leads the Tariff Reform Coalition, a group of 37 associations lobbying to lift the tariffs. The coalition argues industries such as construction, automotive and manufacturing are grappling with punishing steel costs and long wait times for orders — a combination they say has hindered growth as they emerge from an economic rut.

And, Yerxa said, the toll it has taken on their industries has hurt a broader group of American workers. There are 6.5 million Americans working in steel- and aluminum-consuming industries, based on the coalition’s calculation.

“I don’t really think this administration yet has done a very good job of really listening to this large universe of industries adversely impacted,” Yerxa said. “If what you’re concerned about is a worker-centric trade policy, you’re talking about millions and millions of workers being adversely affected. So it doesn’t do much good to talk about the thousands of workers that are benefiting from the policy.”

The Commerce Department and Office of the U.S. Trade Representative said in a joint statement that the administration is “consulting closely with domestic stakeholders and partners around the world that share similar national security interests.” That includes the steel and aluminum industries, as well as their workers and their customers.

BLS data show steel and aluminum manufacturing jobs increased in 2018 and 2019, but those gains were subsequently lost in 2020 during the pandemic. Overall, employment has been trending downward over the past 30 years and the government expects it to drop another 7 percent over the remainder of the decade.

The tariffs have come at a cost to consumers as well. A 2019 analysis by economist Gary Hufbauer at the Peterson Institute for International Economics estimated that Trump’s steel and aluminum tariffs cost consumers $900,000 per year for every steel industry job that is saved or created.

“This is a big handicap for steel-using firms in the U.S. Right now, U.S. steel firms are coining money,” said Hufbauer, a former Treasury Department official.

“Whether the infrastructure bill or the passing of [AFL-CIO President] Richard Trumka will make a difference in Biden’s political calculations remains to be seen,” he added. “The steel and aluminum tariffs cannot be justified on economic or national security grounds, and they are a thorn in U.S.-EU relations.”

The future with Europe — and China

As Biden navigates the domestic political challenges posed by the tariffs, European leaders are adding international pressure.

They challenged the tariffs at the World Trade Organization shortly after they were introduced, asserting that Trump’s justification that they were necessary for national security is bunkum. They also imposed retaliatory tariffs on a wide catalog of U.S. goods, from orange juice to Harley-Davidson motorcycles, further fueling U.S. industry opposition to the tariffs.

More recently, they’ve made clear to Biden that the status quo is untenable. The U.S. and EU agreed in May to find a resolution that would avoid escalating the retaliatory tariffs and, ultimately, ease duties on both sides. Officials aim to cut a deal by Nov. 1 — just in time for the WTO Ministerial Conference in Geneva and the Group of 20 summit in Rome.

But the political reality of removing the tariffs without any alternative measures in place appears to be understood across the Atlantic.

“We understand the willingness of the U.S. to protect its steel industry, but certainly there are ways to do it in a way which is less disruptive for EU producers,” European trade chief, Valdis Dombrovskis, told the Financial Times in a July interview.

That means exploring alternatives to the current tariffs that are still compliant with WTO rules. Under Trump, the U.S. agreed with Canada and Mexico to waive the steel and aluminum tariffs in exchange for “aggressive monitoring and a mechanism to prevent surges in imports of steel and aluminum.”

The Trump administration separately cut a deal with South Korea to replace the steel and aluminum tariffs with a quota system that limits Korean steel imports to 70 percent of the average level of shipments between 2015 and 2017.

It’s possible the U.S. and Europe could agree to similar arrangements. Others, like Tucker at the Roosevelt Institute, have suggested that the U.S. and Europe collaborate on an external tariff on carbon-intensive steel imports that would boost clean steel industries while punishing polluters like China.

Tackling China’s steel overcapacity is perhaps the Biden administration’s biggest challenge. It produces more than half of the world’s steel and has been widely accused of dumping its excess capacity into foreign markets at cheap prices. And even though the U.S. has long had tariffs on Chinese imports, the nation’s products are often routed through other countries, either as parts in other equipment or after being rebranded as another country’s exports.

Europe and the U.S. are devising a plan to counter China’s enormous output in steel as part of the ongoing talks. Pro-tariff groups say a resolution that actually mitigates global overcapacity, not simply pledging to address it, will be necessary if Biden aims to persuade them it’s time to lift the duties.

“It would be between naive and stupid if you just revoke them and said now it’s a free-for-all again,” said Lourenco Goncalves, the president and CEO of Cleveland-Cliffs, which owns the Conshohocken plant. “The cold-turkey tariffs are great as a stopgap, but now we need to evolve to something a little more sophisticated.”

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