I wrote earlier today about the freak-out over the acquisition of U.S. Steel by Nippon Steel and why much of the rhetoric from politicians is bunk. As I noted in the piece, one of the things economic populists are usually concerned about is market concentration. This deal will have a negligible effect on market concentration in the U.S., and the alternative of Ohio-based Cleveland-Cliffs buying U.S. Steel, which some populists and the United Steelworkers union support, would increase market concentration significantly.
The inconsistencies from a populist perspective don’t end there. U.S. Steel, and the steel industry more generally, is the archetypal economic-populist bogeyman.
It was founded in 1901 as a merger between several large steel firms at the peak of the age of trusts. It was the sort of thing that populists at the turn of the century hated: industry consolidation with the backing of mega-financier J. P. Morgan himself. Along with Standard Oil, it was one of the mega firms that inspired the first wave of antitrust crusaders. U.S. Steel was the first billion-dollar corporation, and its valuation of $1.4 billion in 1901 was twice as large as the federal budget that year.
As Jonah Goldberg noted in his review of a recent book by Patrick Deneen, “I do wonder why Deneen simultaneously laments the opening of factories in the 18th century and the closing of them in the 21st.” There’s a similar dynamic with U.S. Steel, which was the embodiment of everything populists hated at the start of the 20th century but has found populists as its last redoubt of enthusiasm in the 21st.
If you hate insiders who get the government to work for them at the expense of the little guy, then you’d hate U.S. Steel. Along with other steel firms, it has for decades lobbied for government protection from foreign competition, which it has often received in the form of tariffs and domestic-content requirements.
One of the steel industry’s top lobbyists was Robert Lighthizer, who became a multi-millionaire as a Washington, D.C., trade lawyer. Lighthizer then served as U.S. trade representative for all four years of the Trump administration. In that role, he pushed for the adoption of additional steel tariffs, which the administration then imposed.
Those came on top of existing punitive duties against foreign steel firms for “dumping” cheaper steel on the U.S. market. As of January 2022, the Congressional Research Service counts 311 different orders for punitive duties on iron and steel imports.
Picking up where the Trump administration left off, the Biden administration has expanded the requirements for domestic content in government projects. Whereas the domestic manufacture of 55 percent of the value of a component used to satisfy the requirements, it will increase to 65 percent next year and 75 percent in 2029. The bipartisan infrastructure law also expanded domestic-content requirements to more types of projects than before.
All of this has worked to largely insulate the domestic steel industry from international competition. Depending on the year, as much as 90 percent of U.S. steel consumption is produced domestically.
Despite the protectionism “working,” employment in steel production has continued its decades-long decline, from 190,000 workers in 1988 to 83,000 in 2022. Maybe in the absence of tariffs the employment decline would have been faster. For example, a Peterson Institute estimate from 2018 found that Trump’s tariffs would create 8,700 jobs in the steel industry. But it also found that steel users would pay $5.6 billion more for pricier steel, which comes out to $650,000 per job “created.”
Steelworkers represent 0.6 percent of U.S. manufacturing employees and 0.05 percent of the total U.S. non-farm labor force. Yet the government pursues protectionism for their jobs at the expense of other workers.
Steel is an input to production in industries that employ far more people than steel producers do. American firms pay well above global prices for steel as a result of protectionism. That hurts consumers eventually, but it more directly hurts workers in other parts of the economy.
As a Heritage Foundation report from 2017 by Tori Smith found, just eliminating domestic-content requirements would result in more than 300,000 additional jobs on net, and that doesn’t even consider the effects of tariffs. Complying with the domestic-content requirements is so time-consuming and expensive that it takes resources away from productive activity. It also guarantees that taxpayer money for infrastructure projects doesn’t go as far as it could.
Steel protectionism is pursued for the few at the expense of the many, as a result of close connections between government and industry, and it results in higher costs for American manufacturing, fewer total jobs, and a raw deal for taxpayers.
Some wealthy lobbyists in Washington are fine with all of this. Why are populists?