Trump should declare victory on steel tariffs before we feel the pain

While many details must yet be resolved, President Trump has shown that his tough negotiating style could bring China’s leaders to the negotiating table on long-contentious trade issues. In addition to being tough, Trump has an opportunity to show that he’s equally shrewd by declaring victory on steel imports.

In March, Trump imposed a 25-percent tariff on steel imports. But last week, Treasury Secretary Steven Mnuchin told “Fox News Sunday” that the United States would delay imposing tariffs on China, giving trade representatives from the two nations an opportunity to progress toward a trade agreement.

“As it relates to China, the steel and aluminum tariffs will remain in force,” Mnuchin later clarified. “Those were not part of our discussions.” But the canny move for Trump now would be to remove the steel tariffs.

{mosads}In a single stroke, he could incentivize the Chinese to accept a fair trade deal while at the same time putting an end to unintended negative consequences that came with steel tariffs.

Domestic steel mills have little interest in earning relatively thin margins for making “boutique” thick, high-strength steel. In the case of offshore energy production, for example, the steel used must withstand the corrosive and high-pressure deepwater well environments for 30 years or even longer, and under no circumstances must it crack.

The typical business model of American steelmakers typically means focusing on products for automakers, appliances, buildings and other high-margin products. Virtually every domestic steel producer has made the conscious business decision not to manufacture the highly specialized steel products needed in energy production.

In fact, American steelmakers today would only be capable of supplying a mere 3 percent of the total steel that the energy pipeline industry needs.

The unfortunate reality is that only a handful of foreign facilities are capable and willing to meet this niche demand for the type of steel required in drilling, pipelines, onshore and offshore production facilities, refineries, LNG terminals, refineries and petrochemical plants.

In other words, the president’s tariffs do not benefit America’s domestic steel producers when it comes to steel used in the energy sector; it only serves to cripple America’s oil and gas industry for no benefit. 

By artificially increasing the cost of piping by 25 percent, the tariffs boost the cost of a typical 280-mile pipeline project by $76 million. For a larger project such as the Keystone XL pipeline, that would mean $300 million extra needlessly spent, according to a 2017 pipeline industry study.

The domestic oil and gas industry spent about $8.5 billion in 2017 on hundreds of tons of steel pipe used in energy extraction. The same 11,300 oil and gas wells would cost $10.5 billion if steel costs rose by 25 percent.

The added costs would have the impact of delaying or canceling pipeline projects. In human terms, American workers would miss out on construction and contracting jobs they need to put food on the table.

Every American is impacted by the steel tariffs. Secretary of Commerce Wilbur Ross admitted, “It is true that higher steel and aluminum costs could mean price increases for American consumers.” As every motorist knows, the cost of filling our vehicles has been steadily rising lately due to a variety of factors.

The steel tariffs are adding to the cost of producing gasoline, which doesn’t help. Trump’s Democratic opponents are launching a campaign blitz attempting to tie Trump to mounting gas pump prices. This is a problem Trump doesn’t need, and an announcement that he was rescinding steel tariffs to get ahead of the problem would go a long way to blunting the attack.

As a major consequence of its ongoing tariff policy, the Trump administration is inadvertently undermining America’s shale oil and gas revolution, which is one of the key drivers of the nation’s economic health.

Ironically, this administration could snuff out President Trump’s promise of an era of “energy dominance” in which the United States would become the world’s premier oil and gas producer. 

While many contentious trade issues must still be resolved, Trump has demonstrated his boardroom prowess in bringing China’s leaders to the negotiating table. In the process, the president made good on a promise to impose steel tariffs.

Now, before the tariffs’ bite is keenly felt by Americans, Trump has an opportunity to declare victory on achieving what he set out to do and lift the tariffs on steel imports. 

Ken Blackwell, a former domestic policy advisor to the Trump Transition team, is a former Ohio State Treasurer, Ohio Secretary of State and Mayor of Cincinnati.