Trump is bending over backwards to protect American steel — and Canada is paying the price

WASHINGTON, D.C. — At a steel plant in Pennsylvania in May, U.S. President Donald Trump promised workers a new era of domestic steel production.

“We are once again going to put Pennsylvania steel into the backbone of America like never before,” Trump said, reflecting how he sees steel as the centrepiece of a revitalized American industrial capacity.

How would he do it? With a tariff workaround that means Canada is paying the price for Trump’s promises in America’s steel-heavy swing states.

The U.S. president has used the International Emergency Economic Powers Act (IEEPA) to impose broad, reciprocal tariffs against countries around the world — for Canada, that’s set at 35 per cent for goods not covered by the Canada-US-Mexico Agreement (CUSMA). Some countries, such as Brazil and India, are facing much higher IEEPA tariffs of 50 per cent.

Those sweeping tariffs were declared illegal by the U.S. Court of Appeals for the Federal Circuit on Friday, but the 7-4 decision delayed enforcement until mid-October. This gives the White House time to appeal its case to the Supreme Court. 

Whatever happens with the IEEPA tariffs, Trump has made it clear he has no intention of stopping there. He also has leveraged his authority  under the Trade Expansion Act of 1962 to target imports from specific sectors.

For example, through Section 232 tariffs, Trump is restricting imports he has deemed a national security risk, particularly steel, aluminum and auto parts. On June 3, the president doubled his tariffs on steel and aluminum imports from 25 to 50 per cent, and in early August, he added copper to the list.

In mid-August, the U.S. Commerce Department significantly expanded the scope of the Section 232 tariffs to include 407 products containing levels of steel and aluminum. The list includes products with varying proportions of metal in them — everything from aerosol cans for whipped cream to furniture to auto and machinery parts.

​​“Today’s action expands the reach of the steel and aluminum tariffs and shuts down avenues for circumvention — supporting the continued revitalization of the American steel and aluminum industries,” said Jeffrey Kessler, the Commerce Department’s undersecretary for industry and security, via a statement, to explain the expansion.

These apply to any and all countries that export the metals to the U.S. But Canada, the No. 1 supplier of U.S. steel imports — to the tune of US$8.36 billion worth last year, followed by Brazil and Mexico — takes the brunt.

Every other country, apart from Canada and Mexico, already faces automatic IEEPA tariffs of 25 per cent or higher, whatever the metal content of their products. But the expanded 232 tariffs enable Washington to tariff goods from Canada that would otherwise be untouchable under the Canada-U.S.-Mexico Agreement (CUSMA). And that’s the point — it’s a workaround.

“I think the intention is very clear … to try to tariff more auto parts from Canada and Mexico,” said Jason Miller, a supply chain management professor at Michigan State University. “For Germany, it doesn’t matter what per cent of the value is metal; it’s getting tariffed at 25 per cent.”

So while the IEEPA tariffs may go away, depending on whether the Supreme Court takes the case, the White House is weaponizing the 232 tariffs to include more products from Canada and Mexico — products that had been going to the U.S. duty-free under CUSMA.

Prime Minister Mark Carney responded in kind last week. While he dropped retaliatory tariffs on U.S. goods otherwise covered by CUSMA in a bid to further trade negotiations, he retained the countertariffs on U.S. steel, aluminum and autos.

Targeting steel imports in the name of national security means Trump wants higher production capacity in case of a national emergency — namely, war.

And by raising the price of imported steel, Trump is giving domestic producers the ability to charge more, which incentivizes them to invest in, innovate and expand their factories. Cue billions being poured into major new projects by U.S. Steel in Arkansas, Hyundai’s plant in Louisiana, and a Nucor plant in Kentucky.

For Trump, propping up steel is also about saving blue-collar jobs and raising wages, appealing to his base. According to the U.S. Bureau of Labor Statistics, union workers’ salaries are up 4.6 per cent since last year.

The U.S. steel industry is being pushed to reach a capacity utilization rate of 80 per cent for national security purposes. In mid-June, weekly raw U.S. steel production hit a three-year peak north of 1.78 million net tonnes, and the mill capacity utilization rate has averaged around 76.2 to 78 per cent, but production dipped a bit in July.

But as for a war footing? American steel production in 1944 during the Second World War was roughly 80 million tonnes, and today, in peacetime, the U.S. already produces about 90 million tonnes of steel annually.

But even if you accept the premise that the U.S. needs to have more domestic steel manufacturing, the tariffs don’t make sense, says Clark Packard, a research fellow in the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. As a result of the tariffs, U.S. steel prices have increased — so much so that it now costs $400 more per tonne in the U.S. than it does for international competitors.

That hurts the other industries that need steel — automotive, machinery, and construction. This, in turn, means more expensive cars, farm equipment, and homes.

“Steel is a vital input for domestic manufacturers,” so applying tariffs to it is “hamstringing the domestic manufacturing economy,” Packard added.

Because U.S. businesses are facing higher steel prices at home, demand for it is flattening. And yet, thanks to tariffs, the prices remain high, rather than dipping in response to the falling demand.

Just as downstream industries that need steel are being hurt, so too are downstream jobs.

“We’re going to pay more for this stuff. It’s just a matter of time,” said Andrew Hale, a senior policy analyst at Heritage Foundation. “It’s going to have a horrible domino effect (on both downstream industries and workers),” he said, noting that manufacturing jobs are already taking a hit.

While steel jobs may be expanding, that is not true in other sectors. According to the U.S. Bureau of Labor Statistics, the U.S. lost 11,000 manufacturing jobs in July and 7,000 jobs in June. The Institute for Supply Management Manufacturing Purchasing Managers’ Index has seen several months of decline, reflecting decreased U.S. factory activity overall.

Packard said Trump is trying to win favour with a blue-collar base but is hurting other parts of the economy in the meantime.

“U.S. policymakers for 60 years have bent over backward to accommodate the domestic steel industry,” fulfilling their protectionist demands, he said. “The difference is the Trump administration is taking that approach and putting it on steroids.”

The approach has many economists and legal experts scratching their heads. Walling the U.S. off from the world with tariffs runs counter to 25 years of empirical economic research on the benefits of trade liberalization.

“You’re forcing U.S. assembly to compete with suboptimal resources,” said Miller, referring to the loss of access to Canadian steel supplies.

“And that puts you at a disadvantage.”

As for the list of 407 new products being tariffed, Miller said, “when we look at those additions, I’d say the auto sector probably jumps out the most just because of the sheer magnitude.”

Experts question whether tariffs can be levied against all of these products in the name of national security.

“Canadian steel rebar is not a national security risk to the United States,” Packard said. “It doesn’t pass the smell test.”

But he is not holding his breath because American courts have largely ruled in favour of the executive branch’s authority to use Section 232 tariffs.

Still, Hale said he expects more legal cases in the months ahead, especially after the legality of the broader tariffs is settled. 

“Once we solve IEEPA, then I think people will start getting the 232 stuff being addressed through lawsuits as well,” he said, noting that the Supreme Court will probably take the case. 

The premise for Trump’s use of the 232 tariffs on national security grounds is based on an investigation from his first term, which leaves wiggle room for legal contention.

“We have a vast difference in the economy between now and what it was like in President Trump’s first term,” Hale said, noting that a new investigation, with fresh consultations with Congress and other stakeholders, is required. Without that, “they’re running rickshaw over the process” and opening themselves to “get challenged in the courts yet again.”

Canadian politicians hope the IEEPA tariffs will be lifted. In the meantime, some Canadian companies have already filed lawsuits in U.S. courts against the 232 tariffs.

American steel producers, meanwhile, are betting — with billions in planned investments, and with Trump’s continued support — that a stronger domestic industry is finally within reach.

National Post

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