WASHINGTON – A tariff on imported steel that President Donald Trump says will shore up the sagging U.S. steel industry enjoys growing political popularity in Minnesota, even as those who specialize in trade policy warn that it could injure other critical parts of the state’s economy.
The loss of thousands of mining jobs on the Iron Range in recent years has moved state leaders to criticize overproduction and public subsidies of steel in countries such as China, Russia, Brazil and Australia. Those practices have spawned calls for trade restrictions.
But some of the state’s largest, most important economic sectors now fear financial fallout from steel price increases and retaliatory tariffs on non-steel products that could exceed any benefit to the state’s mining industry. Agriculture, for example, could take a big hit in a trade battle.
Minnesota’s two U.S. senators, Amy Klobuchar and Al Franken, have checked in on the side of helping the American steel industry, which remains an economic force in the northern part of the state. So have Rep. Rick Nolan, whose district includes the Iron Range, and Gov. Mark Dayton.
“I compliment the president for taking strong action to protect our domestic steel industry from foreign dumping,” Dayton told the Star Tribune. “What will benefit the domestic steel industry — which I strongly support — may have other repercussions for the other trade issues, affecting other industries or other products. [We’ll] have to look at the details of what it is he’s proposing.”
Trump has asked the Department of Commerce to determine if increases in steel imports pose a security risk by limiting the United States’ domestic ability to build the equipment it needs to defend itself.
A finding that it does could lead to what a Commerce spokesman called “broad actions, including tariffs or quotas” that may be imposed as an emergency measure without congressional approval.
Trump continues to talk about an imported steel tariff as part of his “America first” agenda, despite a written warning this month from two former Federal Reserve chairs and 15 senior economic advisers to Presidents George W. Bush and Barack Obama.
“Tariffs would raise costs for manufacturers, reduce employment in manufacturing and increase prices for consumers,” they told Trump in a July 12 letter. “We urge you to avoid a policy that would likely incur greater economic and diplomatic costs than any conceivable national security gain.”
Commerce Secretary Wilbur Ross, who has invested in distressed steel companies, in June promised “bold action” to deal with what American steel interests, including those in Minnesota, consider unfair government subsidies of foreign steel sold here.
Franken wrote to Ross in April, telling him “the U.S. government must stand up for American iron and steel workers when their jobs and livelihoods are threatened by unfair and illegal trade practices by foreign producers.”
The Iron Mining Association of Minnesota supports steel tariffs.
“China, Russia, Australia and Brazil are selling their products at substantially lower costs than we can compete with, even if we cut everything we possibly could,” said association president Kelsey Johnson.
“What we’re interested in, in Minnesota, is making sure our mines are cost-competitive, and we can sell our product in a market that is fair,” Johnson added.
Minnesota’s iron mines are the top producers of domestic iron, Johnson said. Much of it is sold to U.S. steelmakers to produce what is called “first pour” steel, the initial creation of steel from molten iron.
But beginning in 2015, an influx of cheap foreign steel threw half of the 4,000 Iron Rangers employed in the mining industry out of work. The region is only now recovering.
“Steel dumping has left many workers on the Iron Range without a job to support their families,” Klobuchar said in a statement to the Star Tribune. “I have long called for tougher actions to address the dumping of foreign steel on our shores. We should use appropriate tools to address steel dumping without delay — ideally in cooperation with other steel-producing nations but unilaterally if necessary.”
Critics say helping America’s depressed steel industry in the name of national defense or fair trade may hurt the overall economy in Minnesota and around the country.
Professors Robert Kudrle and Paul Vaaler, specialists in international business at the University of Minnesota, believe that steel tariffs will raise steel prices for all steel users.
“If costs go up enough, projects with significant amounts of steel may be canceled or scaled back,” said Tim Worke, CEO of the Minnesota chapter of the Association of General Contractors, a trade group representing commercial and transportation builders.
Real estate development and roads are not the only things at risk. Any Minnesota company that uses steel in its production process faces a price hike that could slow business, Kudrle and Vaaler said.
The other problem is retaliation. While Minnesota’s politicians and the Trump administration talk almost exclusively about Chinese steel dumping, the U.S. imports most of its steel from two allies — Canada and South Korea.
Punishing them with a steel tariff amounts to a diplomatic risk, as well as an economic risk, the July 12 letter to Trump warned. Countries at the recent G-20 summit pledged to try to address the oversupply of steel in the world market. But the Trump administration continues to wield the tariff as an economic sword.
Faced with a stiff tariff on steel sold in the U.S., the European Union “can go after our ag and dairy industries and suddenly Land O’Lakes, CHS and Cargill just got a tax,” Vaaler said. “The E.U. can retaliate against Minnesota in a real way. This is bad economics, bad politics and bad policy.”
Greg Autry, a business professor at the University of Southern California, countered that such thinking is how the U.S. lost its grip on manufacturing jobs.
“Any time you stand up for yourself, you risk retaliation, whether it is against cheese or anything else,” Autry said. “That doesn’t mean you should not stand up to subsidies and tax regimes that are aimed at destroying your industries.”
Still, Minnesota’s agricultural and dairy leaders continue to worry about a steel tariff, said Perry Aasness, executive director of the Minnesota AgriGrowth Council, whose membership includes organizations from Fortune 500 companies to family farms.
“There is a lot anxiety,” Aasness said. “Agricultural and food products are the easiest to place retaliatory tariffs on. Ag lives and dies by exports. This is a real concern.”
The state’s top agriculture and dairy players account for much more of the state’s economy than mining, and Aasness said they are letting elected officials know that “the export market is absolutely critical.”
“We expect Congress and the administration to open markets,” he explained, “not close them.”