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Steel Rallies on Trump Memo, but Our Outlook Is Still Negative

Protectionist trade policies aren't enough to change our long-term view.

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Share prices for operators across the U.S. steel supply chain rose after President Donald Trump dusted off the Trade Expansion Act of 1962 as a vehicle for potentially tougher barriers against steel imports. Trump’s official memorandum empowers Commerce Secretary Wilbur Ross to investigate “the effects on national security of steel imports.” More specifically, the investigation will analyze U.S. capacity relative to the country’s needs for national defense requirements, the effect of imports on the welfare of the industry, unemployment effects resulting from imports, and the likelihood that global overcapacity can be reduced.

Given the wide-ranging list of criteria regarding the conditions that represent a threat to national security, it is difficult to surmise how the Commerce Department’s findings will be manifested in the form of policy. Furthermore, considerable uncertainty exists as to how any such policy might be translated quantitatively in the form of tariffs. One possibility would involve a blanket tariff against all imports. However, we are skeptical that any such tariff would be sizable enough to materially alter our long-term industry outlook.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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