President Donald Trump moved on Thursday against China and other exporters of cheap steel into the U.S. market, launching a federal investigation to determine whether foreign-made steel threatens U.S. steelmakers and national security.
Winning praise from U.S. companies that are constantly fighting with foreign competitors, Trump invoked a rarely-used trade law that raises the possibility of new tariffs. The action triggered a rally in U.S. steel stocks.
At a White House ceremony where he was surrounded by U.S. steel executives, Trump signed a memorandum ordering the U.S. Commerce Department to probe the impact of steel imports on the U.S. defense industrial base.
"Steel is critical to both our economy and our military. This is not an area where we can afford to become dependent on foreign countries," said Trump, a Republican.
The global steel market is in surplus. China is the largest national producer and makes far more steel than it consumes. To find buyers for its excess output, China sells steel cheap overseas, often undercutting domestic producers.
“Everything they export is dumping,” said Derek Scissors, Asia economist at the American Enterprise Institute, a Washington think tank.
U.S. Commerce Secretary Wilbur Ross cast the decision to initiate the probe as a response to Chinese exports of steel into the United States reaching the point where they now account for 26 percent of the U.S. market.
Chinese exports have risen "despite repeated Chinese claims that they were going to reduce their steel capacity," Ross said.
He said if the U.S. steel industry is deemed to be suffering from too much steel imports, he will recommend retaliatory steps that could include tariffs. Trump ordered a probe under Section 232 of the Trade Expansion Act of 1962, which lets the president impose restrictions on imports for reasons of national security.
News of the move triggered a rally for steel stocks, including Steel Dynamics Inc (STLD.O), AK Steel (AKS.N), U.S. Steel (X.N), Nucor (NUE.N), Cliffs Natural Resources (CLF.N), and Allegheny Technologies (ATI.N).
The United States has nearly 100 plants that make millions of tons of steel annually. The U.S. government attempts to shield them from cheap foreign steel chiefly by filing anti-dumping actions with the World Trade Organization, but the Trump administration said these have had little impact.
"The artificially low prices caused by excess capacity and unfairly traded imports suppress profits in the American steel industry," the administration said in a statement.
The Defense Department's annual steel requirements comprise less than 0.3 percent of the industry’s output by weight.
“There is no doubt that steel plays a role in our national security and the manufacturing of U.S. weapons systems,” said Jeff Bialos, a partner at law firm Eversheds Sutherland, who has worked on steel trade cases in the past.
"But the Department of Defense only consumes a small portion of domestic steel output, and this has decreased over the past decade as composites technology has advanced,” Bialos said.
One of the military’s largest consumers of steel are U.S. Navy shipbuilders Huntington Ingalls Industries (HII.N) and Lockheed Martin Corp (LMT.N).
Scissors questioned the administration's invoking of Section 232. He said the United States has other ways to take on China over steel trade issues, other than invoking national security.
“Talking about it as a national security issue - I don’t think it’s necessary and I don’t think it’s justified,” he said.