Act 1: New Age of Protectionism
In April 2017, President Donald Trump issued a memorandum prioritizing federal trade actions to protect the domestic steel industry. While isolationism per se is not a novel concept, the unique feature of the April memorandum was the tool with which President Trump pursued this policy. The Presidential Memorandum initiated an investigation under the Cold War era Trade Expansion Act of 1962 via Section 232 . Why does this matter? First, because the law gives the president unilateral power to affect trade, without Congressional approval . Second, because the law has only been implemented in 26 reviews since inception, only eight of which found a significant threat to national security. The argument for its use today is that America’s ability to independently produce steel is a prerequisite for national defense .
Act 2: Don’t Worry, Be Happy?
On May 24, 2017, more than 35 panelists arrived at the US Department of Commerce Auditorium in Washington DC to participate in a public hearing for the investigation. The speakers represented the spectrum of stakeholders, including CEOs of steel mills, the International President of the United Steelworkers Union, largely in support of stricter trade regulations. The CEO of ArcelorMittal USA and the CEO of ArcelorMittal Tubular Products North America were also in attendance .
ArcelorMittal is one of the world’s largest metals and mining corporations. The company operates steel production facilities, iron ore and coal mines in 18 countries and has capacity to produce 113 million tonnes of crude steel . As the largest steel producer in North America and Europe, ArcelorMittal has publicly applauded anti-dumping protections .
Since publication of the Memorandum, the company has continued to closely monitor trade cases against countries including China, Russia, Ukraine and Brazil. Given the environment of uncertainty around the state and scope of future regulations, ArcelorMittal’s direct response to the investigation has been limited to petitioning in favor of trade restrictions. In the medium term, they have also continued to update and modernize their facilities. Most notably, the company plans to invest approximately $200 million in structural changes in their Indiana facility to optimize its US footprint and reduce costs . These updates will position the company well to take advantage of future whitespace in domestic steel demand.
Act 3: Measured Optimism
It’s easy to see why ArcelorMittal would be bullish on protectionism. Large quantities of foreign, low-cost steel lower the overall domestic market price of steel, making it more difficult for higher cost producers such as ArcelorMittal to compete . ArcelorMittal’s average steel selling prices have increased by ~5% between Q1 and Q2 2017 alone . However, ArcelorMittal should proceed cautiously, being thoughtful of the potential secondary and tertiary consequences of broad regulatory actions.
First, the definition of “Made in America” is yet unclear. Is the critical factor where manufacturing is domiciled? What about raw materials source? While ArcelorMittal owns and operates mines in the US, the company’s overall self-sufficiency rates are only 55% and 15% for iron ore and coal, respectively . Additionally, ArcelorMittal’s Canadian operations produce intermediate steel products that are further processed in the US . A strict definition of “Made in America” could preclude use of these Canadian products.
The protectionist movement could also further incentivize steel-intensive manufacturers to relocate facilities offshore. Imports of steel-containing goods increased by approximately 6 million tonnes in the last decade . The American Automotive Policy Council, which represents Chrysler, Ford and GM, submitted a letter to the Department of Commerce arguing against broad applications of tariffs lest the benefit to the steel industry are offset by harm to the automotive industry .
Finally, trade partners to the US may implement countervailing duties in retaliation to tougher trade borders in the US. India has already imposed anti-dumping duties on certain steel products from the United States and European Union to reduce imports and protect its domestic producers .
Act 4: Hoping for the Best, Preparing for the Worst
The Secretary of Commerce has until Q1 2018 to present his findings to President Trump . Further ambiguity exists regarding the required lead time to implement changes
Given the additional risks identified in the section above, ArcelorMittal should take proactive measures to protect itself from future shocks. In addition to continuing to monitor changes in Washington, ArcelorMittal should take advantage of the current increase in steel prices to lock in long term customer contracts, secure supplier contracts for domestically sourced raw materials, and invest additional capital expenditures into maintaining and potentially increasing the capacity of its facilities worldwide. Even if there are no adverse consequences of the investigation, by taking these actions, ArcelorMittal has the potential to emerge as a more self-sufficient steel producer.
- Given the highly politicized nature of protectionist policies, how should ArcelorMittal balance its businesses in the US and internationally?
- How should ArcelorMittal’s relationship with its customers (such as Ford, GM and Chrysler) change in the uncertain regulatory environment?
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 Department of Commerce United States of America, “Presidential Memorandum Prioritizes Commerce Steel Investigation,” https://www.commerce.gov/news/press-releases/2017/04/presidential-memorandum-prioritizes-commerce-steel-investigation, accessed November 2017.
 Thomas Biesheuvel and Jonathan Stearns, “How Trump’s ‘Hammer’ on Chinese Steel Could Hit the U.S.,” Bloomberg Politics, August 2, 2017, https://www.bloomberg.com/news/articles/2017-07-11/where-trump-s-war-on-foreign-steel-might-lead-quicktake-q-a, accessed November 2017.
 Remarks made at the Steel 232 Investigation Public Hearing, US Department of Commerce Auditorium, Washington D.C., May 24, 2017, From transcript provided by https://www.bis.doc.gov/index.php/documents/section-232-investigations/232-steel-public-comments/1927-steel-232-investigation-public-hearing-transcript/file, accessed November 2017.
 ArcelorMittal, “Who We Are, At A Glance”, http://corporate.arcelormittal.com/who-we-are/at-a-glance, accessed November 2017.
 ArcelorMittal. 2016 Annual Report.
 “Bernstein’s 14th Annual Pan European Strategic Decisions Conference”, Presentation, September 27, 2017, ArcelorMittal, Luxembourg City, Luxembourg.
 Remarks made at the Steel Survival Strategies XXXII Conference, World Steel Dynamics, Marriott New York Marquis, New York, June 26 – 28, 2017, From transcript provided by World Steel Dynamics, accessed November 2017.
 American Automotive Policy Council, “United States Investigation Under Section 232 of the Trade Expansion Act of 1962 To Determine the Effects on U.S. National Security of Imports of Steel”, https://www.bis.doc.gov/index.php/232-steel-public-comments/1734-american-automotive-policy-council-public-comment/file, accessed November 2017.
 Reuters Staff, “India slaps anti-dumping duty on some stainless steel imports”, Reuters, October 25, 2017, https://www.reuters.com/article/us-india-stainlessteel-dumping/india-slaps-anti-dumping-duty-on-some-stainless-steel-imports-idUSKBN1CU1MF, accessed November 2017.