Steel Tariffs Are Awful

Tariffs are maybe the worst economic policy ever convinced by man.

I’m not going to go all into it here, just be aware that, for every job that is protected, many more jobs are lost. Any wealth that is created, much more is destroyed. Any industry that is helped, many more are hurt.

It is a major net loss. It isn’t even close.

Every conservative was against Barack Obama giving subsidies to Solyndra.
Tariffs are the same thing.

Every conservative was against the bailout of some of the auto companies.
Tariffs are the same thing.

Don’t give me anything about “fair trade”. Fair and unfair are progressive buzzwords. Progressives use those words to numb your mind from actually thinking. If a progressive says something is “unfair” and the government needs to make it fair, red flags should go up everywhere. So don’t go around using these words yourself to argue policy.

And trade wars are awful. In 2010, Barack Obama passed a tire tariff to protect the American tire industry. I lived near a Goodyear tire factory in Union City, Tennessee and people were very happy that these jobs were protected.
But China initiated a retaliatory tariff on, of all things…chicken feet!
Chicken feet are a delicacy in part of China, and they’re worthless here, we dump chicken feet in China, but China put a 43% tariff on chicken parts.
This resulted in a bunch of job loss at the Tyson chicken plant down the road in Tennessee.
More jobs were lost at the Tyson chicken plant than jobs saved at the Goodyear tire plant.
It’s a net loss.

So you can’t say, “look, I saved one job at the tire factory.” Sure, but you destroyed more jobs at the chicken factory.

Sugar tariffs do this, for every one job saved in the sugar farming industry in Florida, three jobs are lost in just the candy manufacturing industry.

It’s a net loss. Don’t ignore this reality. Go to the three people at the Mars candy factory who got laid off and tell them it’s worth it because this one sugar farmer’s job got saved. It’s a net loss.

Do you want to know how to beat the foreign steel companies? Don’t make their steel more expensive, make our steel less expensive.

Meaning: Lower taxes, decrease regulations, remove environmental regulations, and change labor laws. There are four free-market reforms to improve the steel industry.

Don’t go instituting big government policies.

I also hear people say we can’t rely on Chinese steel in case we go to war with China. We get something like 3% of our steel from China.

Chin is actually the fifth biggest steel exporter in the United States. It’s in order, Canada, South Korea, Mexico, Brazil and then China. That doesn’t include the European Union, which we get way more steel from than China, so don’t worry about this big bad Chinese steel boogeyman.

And you’re saying, “Slater, China is subsidizing their steel companies, to lower the price of steel that they sell here in America.” To which I say, good. “Thank you, China for that gift. Thank you for instituting a terrible economic policy on your people, robbing from your people to give us less expensive steel.”

The fact that Chinese steel is still cheaper – even after shipping it across the ocean – says that something is structurally broken with the American steel industry and we need to fix that.

Here’s the main story, please read this entire article from Bloomberg, but here is the gist: After WWII, American companies produced 75% of all the steel in the world because German and Japanese steel companies were destroyed by the war. American companies thought they’d dominate the world market forever.

We made steel back then using the open hearth method. European companies after the war started experimenting with something called the “Basic Oxygen Process”. An Austrian company was the first to try this new method of making steel in 1948, they opened up their first massive factory in 1952.

Steelmakers all around the world visited this factory in Austria and they started investing in this method themselves. The cost of building this new steel mill was 50% of the old open hearth factors, operating costs were 25% lower and this new method made four times as much steel in the same amount of time. So this new method could make more steel at a lower price.

What did the American steel companies do? Nothing.

1957, steel executives went to Congress and said everything is great with American steel production.

They were wrong. The American companies fiddled.

Then Europeans came up with something called the Electric Arc method, these are smaller mills, that again make more steel for less money. European countries and Japan and China started to build this new steel production technology.

In the 1960’s, American steel companies started to build these new plants, but by this point, it was too late. We squandered our steel supremacy.

Why does this story matter?

In the 1960’s Ken Iverson took over as the CEO of Nucor Steel, he built the first factory in America in 1969 using the new Electric Arc method. The other American steel companies began begging Congress for tariffs to prevent people from buying foreign steel, they started begging the government for protection to keep them in business because they couldn’t compete. Check out this question from an interview in 1986:

“Why not at least give the industry some temporary relief, time to regroup and modernize and find some way to protect workers from the effects of cutthroat international competition”

Ken Iverson said, “As soon as prices began to rise with tariffs so that steel companies could become more profitable, they stopped modernizing. It’s only under intense competitive pressure — both internally from the mini-mills, and externally from the Japanese and the Koreans — that the big steel companies have been forced to modernize.”…”

He said in 1980, we still had rolling mills that rolled steel back in the Civil War.

So the interviewer said, “Your argument is that protectionism tends to make the industry weaker, not stronger.

Iverson said, “That’s right. Unless you’re under intense competitive pressure and it becomes a question of the survival of the business to do it, you’re just going to lapse back into your old ways. There’s no other answer”

So remember this: you’re not just passing tariffs to protect American jobs. You’re also protecting broken business models.

We’re telling companies, “you don’t have to change a thing! You don’t have to modernize! You don’t have to change your business model! You don’t have to compete! You don’t have to change your ways at all!”

So we’re protecting a broken business model and inefficient companies to make less steel at higher prices. That’s not a good economic policy.

I’ll end here with this video from Gary Vee, Gary Vaynerchuk, entrepreneur, angel investor, tech guy, talking about how Toys R US went bankrupt [Language warning, start at :40]:

American steel companies didn’t innovate either.

I don’t want to protect them from their mistakes anymore.

I want them to compete and succeed on their own.