Donald Trump’s struggle to revive the US rust-belt
As the daytime shift ended at the sprawling Great Lakes Works steel plant south of Detroit, there were only a dozen or so customers at Mr K’s Saloon, huddling around a few tables to drink after a friend’s funeral. Behind the counter, Amanda, the 29-year-old owner of the bar, where a beer costs just $1.50, bemoaned the poor state of business. The number of burgers she’s been serving to hungry workers has plummeted since the factory idled one of its blast furnaces and announced plans for 200 lay-offs this year.
“In the steel industry, it’s not always perfect. Some years are good and some years are bad,” she says. “But I feel like this has been one of the worst in a long time.”
The struggles of the factory, run by Pittsburgh-based US Steel Corporation, reflect the torpor that has descended on US manufacturing in 2019. Industrial activity has stagnated across the US economy, but particularly in several rust-belt states that could determine the outcome of Donald Trump’s re-election bid next year, in a worrying sign for the White House and its trade policies.
After entering office in 2017, the US president pressed ahead with an aggressively protectionist agenda, including 25 per cent levies on imported metals in early 2018 and an escalating tariff war with China, with the aim of regenerating pockets of blue-collar, industrial America left behind by globalisation like the so-called “downriver” towns near Detroit. The upheaval to global commerce driven by Mr Trump has delivered a significant hit to the world economy, exacerbated geopolitical tensions with China, heightened volatility in global markets and angered allies in Europe, North America and Asia.
But for all the economic and diplomatic fallout, the domestic economic returns have been small for the US president, especially in the rust-belt. Employment levels in primary metals production — and US manufacturing overall — made solid gains last year, but have fallen back in 2019. The ISM’s index of US manufacturing activity has contracted for the past three months.
In Michigan, where Mr Trump prevailed over Hillary Clinton by a tiny margin of just 10,704 votes in the 2016 race, manufacturing jobs dropped by 4.2 per cent in October, or 26,800 positions, on a year-on-year basis, according to US labour department figures. Although the data was depressed by a strike at General Motors that has since been resolved, there was little to cheer about in the state.
“There’s softness in the auto industry, there’s softness in the steel industry and we’re beginning to feel the ripples of the tariffs,” says Marick Masters, a professor of business at Wayne State University in Detroit. “The climate is much more uncertain and much more doubtful about what the future holds.”
The background to such uncertainty is Mr Trump’s trade war. For the past two months, the US and China have been locked in discussions about pausing the trade dispute and avoiding a further escalation in tariffs. But any accord would be limited in nature if it happens.
China is expected to boost its purchases of US farm goods and make some commitments on intellectual property, currency and market access, in exchange for a reprieve from American levies. But it is not prepared to revamp its economic model to turn away from industrial subsidies and the forced transfer of technology, along the lines that Mr Trump has been seeking.
US officials insist that the thornier issues will be tackled in a subsequent stage of negotiations, but this is unlikely to take place before the 2020 presidential election, if at all — further exposing the US president to criticism that his trade bluster has delivered paltry results for industrial America.
The suffering at US Steel, a staple of industrial America since its founding by John Pierpont Morgan in 1901, will be particularly jarring for Mr Trump and his team. Robert Lighthizer, the US trade representative and an Ohio native, spent years as the company’s top external trade lawyer, waging its battles against imports. In July 2018, Mr Trump chose a once-idled US Steel plant in Granite City, Illinois, to declare that his policies had succeeded, adding symbolic significance to the company’s downturn in fortunes.
“After years of shutdowns and cutbacks . . . workers are back on the job, and we are once again pouring new American steel back into the spine of our country,” the president said.
But those words may have been spoken prematurely. Since then the benchmark price for hot-rolled band steel in the US, which had spiked after the tariffs were introduced, has fallen from above $1,000 a metric tonne to about $567 a metric tonne in November. Meanwhile, US Steel’s shares are now trading at less than a third of their value in early 2018. The company reported a loss of $84m in the third quarter of this year, its first since 2017. Beyond the lay-offs in Michigan, US Steel cut jobs in Gary, Indiana, East Chicago, Illinois, and the Iron Range of Minnesota, blaming “challenging market conditions”.
It is hardly the only steel company to be in trouble. In recent months, AK Steel of Ohio has shut a facility in Kentucky, and Bayou Steel of Louisiana has filed for bankruptcy. Steel companies such as Nucor of North Carolina which are less reliant on traditional blast furnaces than nimble electric arc furnaces called “mini-mills” have been performing better. US Steel itself made a $700m investment in an Arkansas steel plant that is more technologically advanced than its existing facilities. but analysts say the sector’s difficulties are clear.
“Last year was the party, and this year was the hangover,” says Timna Tanners, Americas mining and metals analyst at Bank of America Merrill Lynch. “When the tariffs went in place mills were emboldened to add more supply and there was a ramp-up in utilisation . . . but then demand softened, and the excessive inventories led to destocking.”
The steel country woes are the result of a confluence of trends that damped demand for their products this year. US business investment dried up after companies preferred to use proceeds from Mr Trump’s 2017 tax cuts to reward shareholders rather than boost capital expenditure. Meanwhile, export-oriented manufacturers took a hit from the global slowdown that was partly driven by the US trade war with China.
““We didn’t just do steel, we did aluminium, then we did China tariffs, then we threatened auto tariffs,” says Simon Lester, trade policy analyst at the Cato Institute, a libertarian think-tank. “The end result is the steel industry is struggling and manufacturing is struggling”.
When the tariffs on steel and aluminium were first unveiled, the relief to producers was offset by the higher prices experienced by consumers of American steel such as carmakers and construction companies, which were faced with higher input costs. The Trump administration initially gave exemptions from the metal levies for imports entering from countries including Australia, Brazil, Argentina and South Korea. This year it removed the tariffs on goods from Canada and Mexico, and offered some exemptions for individual companies, in a maelstrom of decisions that muted the impact of the policy.
The administration has never regretted the decision to impose the metals tariffs. “Billions of dollars are being invested in new or rejuvenated mills and foundries all across America,” Peter Navarro, Mr Trump’s manufacturing and trade adviser, said in a speech at the World Trade Symposium in New York in early November. “God bless tariffs and the flyover states.”
Officials will also point to broader trends to defend their policies. US unemployment remains close to record lows and equity markets are at record highs, while summertime fears that America was sliding towards a recession have eased. There is also hope that the manufacturing slump has also bottomed out.
But even some who are sympathetic to Mr Trump’s more confrontational stances on trade say they have not been a slam-dunk for the rust belt. Scott Paul, president of the Alliance for American Manufacturing, a partnership between US manufacturers and the United Steelworkers union, says that even though the steel tariffs did shrink imports, they failed to address the underlying reason for the industry’s difficulties, which is the glut of supply fed into global markets by China.
“The biggest disappointment of the steel tariffs was the inability to directly address the massive degree of overcapacity around the world — it’s a mammoth amount. Tariffs provided some insulation from that but it was a very thin layer,” says Mr Paul. He argued that the Trump administration should have done a better job of “boxing in China” in conjunction with US allies including the EU and Japan during global talks on excess steel capacity which Beijing controversially ditched in October.
“The Chinese engine is still driving this,” adds Tom Gibson, president of the American Iron and Steel Institute, which represents North American steel producers in Washington. He says the tariffs were needed to give “the domestic industry some breathing room”.
“We strongly supported them [the tariffs] and we still strongly support them. The question is where would be without them?” he adds.
So far, US Steel has only laid off 58 of the projected 200 workers at the Great Lakes plant, but the concern is that there could be more redundancies if conditions continue to soften. It straddles two towns — River Rouge and Ecorse — where the median household income is well below the national average, more than a third of residents live in poverty and some of the only new businesses sell medical cannabis.
The plant services carmakers in the area, but the US auto sector has been grappling with a decline in domestic sales from its peak in 2016. Kristin Dziczek, vice-president of the Center for Automotive Research in Ann Arbor, Michigan, says she is expecting auto sales to fall by about 500,000 units to 16.7-16.8m next year, which will further damp steel demand. Richard Marsh, a city administrator in Ecorse, says the shift in mood was sudden in his town, since US Steel was discussing an expansion of the facility earlier this year.
Few of the locals believe Mr Trump’s trade policies are to blame, yet they admit they have been no panacea. Bob Kemper, chair of the grievance committee of the local USW chapter, says the situation would be “a lot more devastating” if the steel tariffs had not been enacted and, if anything, the US president has not been protectionist enough.
“With proper trade policies there’s no doubt about it: manufacturing could come back to America. But it’s gonna take a lot more than what we’ve done. Do I know what that magic pill is? I don’t know,” says Mr Kemper.
Michael Bowdler, a former steelworker and now mayor of River Rouge, says many in the town were “blue-collar Democrats”, and they were all “happy” with the steel tariffs. “I’m not saying he’s done the right thing, but if nothing was done we would have no steel mills left in this country at all. And I’m one of those firm believers. I’ve always driven American-made cars,” he says.
At a Greek diner along the blighted main drag of the town, Tyrone Carter, a Democrat who represents the area in the lower chamber of the Michigan legislature, says Mr Trump had been a “great salesman” for industrial revival but the reality had been far different. “You’ve got to give it to Trump, he pulled out the IV and tapped into the vein. But slowly, people are saying that it’s not what he sold us on,” he says.