December 2018 - In January 2018, the Department of Commerce issued its “Report on the Effect of Imports of Steel on National Security,” which became the basis for the March 2018 order imposing 25 percent tariffs on certain steel products under Section 232 of the Trade Expansion Act. Among the key findings of the report was that steel is required for America’s critical infrastructure.

As chair of the American Institute of Steel Construction, representing more than 1,000 American structural steel fabricators in the supply chain between steel producers and construction projects, I testified on the issue of critical infrastructure, arguing that no country with domestic steelmaking and steel fabricating capacity should outsource the steel for its infrastructure work.

Commerce agreed. Its report also noted 16 critical infrastructure sectors that use high volumes of steel, and that the American Society of Civil Engineers estimates the U.S. needs to invest $4.5 trillion in infrastructure by 2025.

The initial impact of the Section 232 tariffs was generally positive for steel construction, as order books filled up ahead of anticipated price escalation. However, as the market digested longer-term impacts, steel buyers found a loophole to undermine the entire policy. As tariff-bearing mill steel imports fell, fabricated structural steel components began pouring into the U.S. at unprecedented levels.

To be clear, the Section 232 tariffs did not start the rise in imported fabricated steel. In 1994, NAFTA opened the door for Canadian fabricators to supply steel for U.S. construction projects. In 2006, the Oakland Bay Bridge project made headlines when steel came from China.

But as the U.S. economy recovered from the recession, the volume of imported fabricated steel rose steadily. Between 2010 and 2017, imports of fabricated steel from China rose 300 percent, with about 500,000 tons of fabricated components in 2017 alone. Imports from NAFTA partners also increased, often containing steel produced in China.

Commerce estimates that imported fabricated structural steel has increased 136 percent in five years, at a far higher pace than the U.S. construction market itself. In other words, foreign steel fabricators have gained far more from growth in U.S. construction activity than American fabricators have. And the trend has accelerated since March 2018.

The impacts are nationwide–from industrial projects in the Gulf region, where steel is shipped from China as fabricated modules; to stadiums and convention centers in the West; to high-rise towers in New York City. U.S. fabricators are losing projects often before bids are solicited as infrastructure is outsourced abroad.

A few policy options are available to counter the tariff circumvention.

• Expand the list of tariff codes under Section 232 to include fabricated structural steel products to re-level the playing field between domestic and foreign fabricators with the tariffs in place, and to maintain protection if tariffs are converted to quotas in bilateral agreements.

• Increase pressure on China to stop undermining U.S. steel policy with higher tariffs under Section 301. Fabricated steel products were added to the Section 301 tariff lists in July 2018, but 25 percent won’t make a material difference in import levels for structural steel from China.

• New investigations of dumping and/or illegal subsidies as imports rise would generate direct long-term relief if additional duties were imposed on fabricated steel.

• Incorporate protection in new trade agreements to stem the flow of fabricated steel originating in China. The administration included structural steel products in the new U.S.-Mexico-Canada Agreement to require higher levels of North American steel content, but steel products transshipped through other countries remain a problem.

• Finally, the administration and Congress must include Buy America requirements in any infrastructure plan that promotes private-sector financing. For decades, Buy America on federally funded infrastructure has ensured that American steel is used in public projects. But if the next generation of infrastructure is funded through private sources without Buy America, the domestic steel construction industry will be overrun by imports.

American structural steel fabricators built this country and have the capacity to build its future. The administration recognized and addressed issues facing the steel industry. But as the marketplace exploits loopholes, the policies need to adapt. America’s ability to build its own critical infrastructure is at stake. n

David Zalesne has served as president of Owen Steel Company, Columbia, South Carolina, since 2004, and has been a member of the AISC board since 2006.