Big Steel Is the New Solyndra
Crony capitalism was a feature of President Obama’sprogressivism. Who can forget the 5 million green jobs? He used tax dollars to “bend the cost curve” of health care. People like Elon Musk became astonishingly wealthy building the low carbon footprint cars Obama envisioned, and companies like Solyndra became household names.
But Solyndra is old and busted; enter the new hot thing: big steel.
Notwithstanding President Trump’s executive order aimed at weeding his administration of lobbyists, big steel has staked quite a claim to U.S. trade policy.
If personnel is policy, there is nothing subtle about the administration’s pro-steel bent. Dan DiMicco, the former CEO of Nucor Steel, served as Trump’s head trade adviser and transition head. In the administration are well-known big steel attorneys Robert Lighthizer, the newly minted U.S. Trade Representative (USTR), and Steve Vaughn USTR’s General Counsel. Rumored to be in the hopper are Jeff Garish for deputy USTR and Gil Kaplan for Under Secretary for International Trade at the Department of Commerce.
Of course, the administration could strictly enforce the pledge from the sixth paragraph of its lobbying executive order:
I will not for a period of 2 years from the date of my appointment participate in any particular matter involving specific parties that is directly and substantially related to my former employer or former clients, including regulations and contracts.
But does anyone expect that?
Big steel will control the levers of a policy apparatus already skewed towards propping up the industry. According to Scott Lincicome, citing U.S. International Trade Commission Data, the steel industry benefits from “over half of all anti-dumping and countervailing duty (AD/CVD) orders on imports” launched by the United States.
And contrary to the administration’s narrative, the United States is the most aggressive country in the world when it comes to “trade defense” measures.
Campaign rhetoric cast big steel as a babe in the woods left helpless by low U.S tariffs and Chinese wolves. While it is true that the United States maintains a low 3 percent tariff on most imports, that is not the case for politically sensitive goods like steel. When trade remedies come into play the numbers are positively blushworthy.
Last May, for example, the Obama administration imposed a 265.79 percent duty on Chinese cold-rolled steel imports. A week later, the Department of Commerce imposed a 209.97 percent duty on coated steel, also from China.
But the steel industry represents U.S. manufacturing, right? No. In 2014, the entire primary metal manufacturing sector, which includes not only steel but all of the other metal manufacturing you might be thinking of employed 399,000 people. But the sectors that used steel in finished products employed 6.5 million. The former created $59.7 billion in value; the latter, $990 billion. In other words, the high price of steel has a far greater impact on the consumers.
The point is not to say that the steel industry is small or insignificant. It surely is not. However, when the lobbyists for an industry worth $60 billion use government to dictate that participants in a $1 trillion market segment buy from them, no matter the price, it meets the very definition of crony capitalism. And this is to say nothing of the administration’s “buy American” provisions.
The Trump administration intends for everything that both consumers and the government buy with steel in it to become more expensive. The cat perch given to big steel will prove vital in making that happen.
Our steel industry does suffer from global overcapacity issues. China, in particular, catches plenty of well-deserved grief for national policy decisions that exacerbate global overcapacity. Taking action through rules-based organizations like the WTO is appropriate.
Not appropriate is placing the government’s considerable trade remedy power in the hands of just one industry, or forcing every single American to pay high prices to benefit big steel. Trump would do well to keep in mind that the policy ends—in this case, a steel renaissance—that seek to justify cronyism rarely come to fruition, leaving the cronyism stripped bare. Despite President Obama’s best crony capitalist attempts to create a green energy revolution, the only energy revolution we got was the fracking revolution. But we will always have Solyndra.
Kristofer L. Harrison is senior managing director for a macro-economic consultancy. Previously, Mr. Harrison served as an official at both the State and Defense Departments during the George W. Bush Administration.