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Editorial comment

Undercutting pipelines with steel tariffs

US President Donald Trump has imposed tariffs of 25% on imported steel in an effort to fulfil his election promise to rescue the US steel industry. For years the US has levelled accusations at China and other countries for dumping excess steel capacity onto the market and hampering US industry.

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President Trump is fixated on his nation’s US$568 billion trade deficit and wants to balance the books. He is utilising a loophole in the General Agreement on Tariffs and Trade (GATT) that allows signatories to erect trade barriers and practise protectionism in times of war or national emergency. Trump’s administration argues that the health of its domestic steel industry is a matter of national security and that drastic measures must be taken to squeeze out global overcapacity. At its peak in 1973, the US produced 136.8 million t of steel. Figures in 2016 stood at 78.5 million t. China brought online 552 million t of extra capacity between 2007 and 2015 and produces nearly half of the world’s steel. The US is the world’s biggest steel importing nation.

Previous US efforts to curtail steel dumping have often been successful and some 169 anti-dumping and countervailing duties are currently established, but President Trump’s new approach paints much broader strokes. The new tariffs will not apply to imports from Canada or Mexico (following a particularly loud response from both nations who, combined, provided a quarter of US steel imports in 2017), but set to suffer are exporters such as Brazil, China, South Korea, Japan, Taiwan, Russia, Turkey and Germany.

International response has been swift and cutting, but the move has also been criticised domestically. 100 Republican members of Congress wrote to the President as he was preparing to sign the declaration, urging caution and advising that “tariffs are taxes that make US businesses less competitive and US consumers poorer.”

Understandably, the tariff announcement brought fury from steel-consuming industries in general, as a higher cost of metal will make them less competitive. Much more US industry uses steel than manufactures it: the steel industry employs 140 000 people; steel users employ 6.5 million people. Yes, homegrown manufacturing can be ramped up to try to meet domestic demand, but it won’t be achieved quickly and it is important not to understate the ramifications of a broader trend in global industry: automation. US steel output rose 9% between 2001 and 2017, but employment in steel mills in the same period fell by 31%. Steel companies are able to work to new efficiencies and employ fewer people because of new automated technologies.

So, what about the pipeline industry? Energy companies and pipeline manufacturers will likely take a huge hit from this legislation. When President Trump signed executive orders in January 2017 mandating that the Keystone XL and Dakota Access pipelines be built, he also signed an order calling for the Commerce Department to develop a plan for US steel to be used in “all new pipelines, as well as retrofitted, repaired or expanded pipelines” inside the US. But US capacity to produce steel for pipelines is lacking. US steelmakers currently cannot produce the kinds of speciality steel grades and/or pipe diameters needed for some pipeline projects. The tariffs may prove to be a boon to industries such as automotive, where margins are smaller and costs are lower, but for pipelines the thinking is short sighted. Pipeline developers are seeking exemptions from the new tariffs, arguing that the pipeline industry is a niche market that deserves special dispensation (pipeline-grade steel comprises less than 3% of the overall steel market).

Jack Gerard, President and CEO of the American Petroleum Institute, said the tariff is inconsistent with President Trump’s goal of US energy dominance. The US Association of Oil Pipe Line said that hundreds of millions of dollars could be added to pipeline projects. Imports account for a massive 77% of the steel used in US pipelines according to an ICT International report in 2017. Higher steel prices conceivably mean raised pipeline project costs, delays, job losses, an increase in (less safe) rail and road transport and raised prices for consumers.

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