Trump's steel tariffs create big profits but few new
jobs
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[November 13, 2018]
By Timothy Aeppel
SEDALIA, Missouri (Reuters) - Nucor Corp,
America’s largest steelmaker, planned a new plant in Sedalia, Missouri,
long before U.S. President Donald Trump imposed tariffs to protect the
industry – and it does not need them to make money.
Although the firm helped lead the lobbying push for tariffs on imports,
executives say they invested in Sedalia and two other sites to
capitalize on an already profitable strategy that doesn't depend on
government help.
While Trump has played up the narrative of downtrodden steel workers
losing jobs to unscrupulous foreign competitors, most of the benefit
from his 25 percent tariffs are flowing to the already strong bottom
lines of Nucor and other modernized and globally competitive U.S. steel
firms, according to interviews with industry executives, experts and a
Reuters review of company earnings.
Even if tariffs prompt such firms to expand, they are not likely to add
large numbers of factory jobs because they have stayed competitive by
slashing the amount of labor required to make steel.
(For a graphic on steel industry efficiency and job loss, see: https://tmsnrt.rs/2PLloLb
)
The Commerce Department said in a statement to Reuters that tariffs will
help the Sedalia plant and 12 other steel projects create about 3,405
jobs. That's a 2.4 percent gain industrywide, according to the American
Iron and Steel Institute.
About 1,400 of those jobs at six projects, including the three Nucor
sites, were planned before tariffs or do not rely on them, according to
some of the firms and a Reuters review of company documents. In
addition, two other projects by Republic Steel, which would create 690
jobs by restarting previously idled operations, are not certain to go
forward, the company said.
A Commerce Department spokesman did not comment on whether all the
projects on the administration's list depended on tariffs but pointed
out that steel imports have declined recently and domestic production
has increased. The department said broad tariffs on imports were needed
because of rampant “chicanery” by foreign producers who evaded existing
countervailing and anti-dumping duties, which are applied narrowly to
specific products.
Nucor has led the sector’s transformation to labor-saving plants since
the 1970s, replacing older blast furnaces with more efficient modern
electric arc furnaces.
Trump’s tariffs may prove pivotal in extending the life of older, less
efficient plants such as U.S. Steel’s Granite City plant near St. Louis,
where the president held an event in July to tout tariffs. The company
credits tariffs for its decision to add 800 jobs by restarting two blast
furnaces it had idled in 2015. A total of 1,500 workers will now work in
a factory where sparks fly and molten steel is still poured from giant
ladles in a labor-intensive, multi-step process.
At Nucor's plant in Sedalia, by contrast, 225 people will make steel
with a high-tech furnace that shoots electricity through scrap metal to
melt it into new products. That technology is now used to produce nearly
70 percent of U.S. steel - with a third less labor and energy, according
to Charles Bradford, president of Bradford Research Inc.
Nucor CEO John Ferriola testified in Washington last year that tariffs
would encourage steel-sector investment, but he emphasized in a
statement to Reuters that the company's own capital projects are
"designed to be competitive even without tariffs."
Although Nucor's expansions don't depend on protectionist policy, a
company spokesperson said, tariffs make such investments easier by
limiting the dumping of artificially low-priced steel on the U.S.
market.
Nucor announced last month that it had nearly tripled its third-quarter
profits, to $676.66 million, compared to a year ago. Earnings for steel
companies in the S&P's steel index soared more than 75 percent in the
first half of 2018 and are expected to jump 166 percent in the second
half, according to I/B/E/S data from Refinitiv.
'TRANSFORMATIVE' JOBS
Nucor has led the way in slashing labor costs with modern factories, a
trend driving industry job loss as the hours of labor needed to produce
a ton of steel has been cut from nearly 10 to two since 1980, according
to the American Iron and Steel Institute.
Nucor selected Sedalia because of its location on a main rail line, near
ample scrap metal sources and major construction markets needing the
plant’s steel rebar.
Although the plant will create few jobs compared to steel factories of
the past, the positions – with salaries averaging $65,000 - are highly
coveted in Sedalia, where home values average $86,000 and 15 percent of
adults have a college degree, according to U.S. census data.
The desirability of the jobs underscores a political dynamic often lost
in the debate over Trump’s trade policy. In places like Sedalia, where
70 percent of residents of the surrounding county voted for Trump, steel
jobs are prized over other blue-collar work.
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Construction takes place at the site of the Nucor Steel Mill in
Sedalia, Missouri, U.S., October 3, 2018. Picture taken October 3,
2018. REUTERS/Lawrence Bryant
Sedalia assigned a team of 10 people to court Nucor for a year, and the state
provided tax incentives that could total nearly $27.3 million over 15 years.
Local economic development director Jessica Craig called the jobs
"transformative."
'DEATH BY CHINA'
Nucor gets a warm reception in Washington, too, where it's the biggest spender
on lobbying among steel firms, laying out $1.25 million so far this year, down
from a peak of $2.71 million in 2015, according to Nucor disclosures compiled by
the Center for Responsive Politics.
Nucor's political spending, which also includes millions of dollars in donations
to political candidates, started under former CEO Dan DiMicco, who started in
2000 and stepped down in 2012. DiMicco went on to advise Trump on manufacturing
during the presidential transition and is now a member of his Advisory Committee
for Trade Policy Negotiations, a key venue for business leaders to influence
U.S. trade negotiators.
Nucor also gave $1 million to a San Diego nonprofit in 2011, which was used by
Peter Navarro - now a top Trump trade adviser - to make a film called "Death by
China." At one point, the film depicts a knife emblazoned with "made in China"
plunging into an American flag as a voice-over intones: "China is the only major
nation in the world that is preparing to kill Americans."
DiMicco said his experience running Nucor shaped his views.
"My customers came to me and said, 'China is killing us'," he said in an
interview, "so this turned into something much larger than the steel industry …
You may have to put tariffs on every product from China to change their
behavior."
As they raise alarms about unfair competition, however, Nucor executives take
pride in the company's performance despite such headwinds. Nucor has been
profitable since 1968 in every year but one – 2009, amid a global financial
crisis.
Nucor has also sought to block other companies' efforts to win exemptions from
the tariffs through a Commerce Department process that awards them in cases
where, for instance, a company can't find the type of steel it needs
domestically. Nucor said it filed objections to about 10 percent of the more
than 42,000 steel exemption requests received as of October 22.
They included those from companies such as NLMK Pennsylvania LLC, which sought
exemptions for imported slabs it uses to make steel coils.
"They don't even make the kind of slabs we use," CEO Bob Miller said of Nucor,
who he believes wants to compete with him in selling coils. "It's totally
anti-competitive."
The tariffs are boosting capacity of the slabs NLMK needs, Nucor said in a
statement, so there should be "plenty of slabs available domestically."
LOST PROFITS, JOBS
Tariff critics argue that rising profits for the steel industry come at the
expense of its customers and their workers. Higher prices mean steel users -
companies making everything from tractors to skyscrapers - could cut 16 jobs for
every one added in steel manufacturing, according to the Trade Partnership
Worldwide LLC, a pro-trade economic forecasting and consulting firm in
Washington.
Tariff advocates call such worries overblown.
"What you see six months into the steel tariffs is that the manufacturing
economy is strong," says Scott Paul, president of the Alliance for American
Manufacturing.
Steel consumers say their cutbacks will come over time, as higher steel prices
erode their competitiveness.
Major automakers including Ford, Honda, Fiat Chrysler and General Motors have
said the steel tariffs will mean billions of dollars in new costs for the
industry, and GM recently announced cuts to North American white collar staff.
The impact reaches far beyond auto factories to anyone who uses steel. Joe
Pecoraro, a project executive at Skender Construction, a Chicago builder, said
the tariffs caused him to delay two projects that would have produced at least
130 construction jobs.
"The cost of everything made of steel," he said, "has gone through the roof this
year."
(Reporting By Timothy Aeppel; Editing by Joseph White and Brian Thevenot)
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