U.S. Steel Is Not Done Winning Yet

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One of the biggest trends in Washington in recent years has been the use of tariffs. The current administration has been quick to impose stiff import taxes on various industries to strengthen its negotiating position for trade deals and, in turn, prop up domestic industries. U.S. steelmakers have been a huge beneficiary of this. However, that’s just one piece of a much more complex picture. Here’s a deeper look at how U.S. steel has gone from losing to winning today.

Taking it on the chin

Between 2007 and 2009 the United States fell into a crushing recession. It was the worst since the Great Depression, garnering the nickname the Great Recession. The steel industry is cyclical, so, as you might expect, demand for steel declined along with the economy. As the U.S. picked itself up and started growing again, however, steel prices continued to languish. It was so bad that United States Steel (NYSE:X), which uses relatively high-cost blast furnaces, lost money in all but one year between 2010 and 2016.

The historically slow recovery from the impact of the recession, however, wasn’t the big problem. Demand in the U.S. was actually pretty strong relative to the rest of the world. What was keeping steel prices low was a flood of foreign imports. The domestic steel industry complained, rather loudly at times, that foreign companies were selling their steel in the U.S. at prices that were below the price of production. This is called dumping. Helping that along, the U.S. companies claimed, were foreign governments providing financial assistance to their local steelmakers.

As a new president entered the White House in 2017, he made it very clear that he was going to take a harder stance on trade than the previous administration. In the steel market, that meant imposing tariffs on imports. At first that led to increasing steel prices, but, as John Ferriola, Nucor‘s (NYSE:NUE) CEO at the time, explained in an interview on CNBC in early 2019, that price boost quickly died away.

There are more complicated dynamics at play here.

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