‘Buy American’ and ‘Hire American’ were two of President Trump’s campaign lynchpins in 2016, and it’s a philosophy which is coming to fruition in the steel markets. Trade Advisor at the White House, Peter Navarro, first confirmed President Trump’s intentions to set out mandates for steel and iron use in federal constructions. Having signed an executive order on July 15 2019, the President’s commitment to U.S. goods, materials and products has never been clearer.
Following the Buy American Act, the latest executive order requires federal buyers to go to greater lengths when purchasing American goods. Whilst American-made products currently need to contain at least 50% of U.S. made components, this figure will rise to 75% following President Trump’s latest order. When it comes to steel and iron products, however, this figure will soar to a staggering 95%.
A big boost for the U.S. steel industry, any federal agencies or government projects which require iron or steel, must use at least 95% U.S. steel. For domestic commodity producers, President Trump’s most recent order is a cause for celebration. By mandating that government-related projects must use U.S. steel, the order effectively reduces competition from overseas and breathes new life into the steel market.
Boosting The Steel Market
Whilst the recently enacted mandates are designed to boost the economy, trade wars have dominated the headlines in recent weeks. Despite reports confirming that 224,000 jobs have been added to the economy, there have been concerns that customers have been playing a waiting game until the price of commodities drops. CEO of Majestic Steel USA, Todd Leebow, confirmed customers appear to be ‘buying less and holding less’, whilst waiting for the tariff-induced high prices to fall.
Although the mandate has largely been welcomed by the steel industry, there are concerns that domestic production can be costly for business. As a result, it’s possible that customers will be reluctant to spend more on U.S. steel, particularly when they previously had access to cheaper materials via non-domestic suppliers.
Whilst some firms, such as Majestic Steel USA, have led the way in developing high-tech productions and steel sales, other domestic manufacturers have arguably fallen behind in the race to make production more efficient and cost-effective. As a result, the relatively high cost of domestic production is bound to trickle through to the customer, perhaps explaining the recent drop in steel sales and holding patterns.
Improving Employment Rates
By mandating that at least 95% of the iron and steel used in government-related projects is U.S. steel, it’s predicted that employment rates will rise within the industry. With federal customers unable to use steel produced by international manufacturers, the demand for U.S. steel will increase, leading to more investment in plants and production, as well as growing workforces.
Whilst the idea of using mandated commodity purchases to increase employment appears to work in theory, it is possible that the reality of the latest mandate could fall short.
With just 15 months until the next Presidential Election, federal buyers may be looking to the future when they consider their upcoming projects. If they predict a change to the current executive order and a more relaxed approach to internationally-manufactured steel, it’s possible that projects could be postponed, delayed or scrapped altogether. Instead of breathing new life into the steel industry, this could have the knock-on effect of job losses in the construction industry and a stagnating commodities market.
Of course, if federal buyers believe the new mandate is here to stay, they will have no choice but to embrace the U.S. steel industry and hope that newer technologies and move streamlined production processes help to reduce the costs of domestic production. With many U.S. steel manufacturers eager to see the mandate boost their industry, how reinvestment will take shape remains to be seen. If U.S. steel manufacturers do switch to more cost-effective manufacturing methods, they could acquire and retain federal buyers, regardless of legislative mandates being enforced. Of course, this would be dependent on manufacturers passing on these savings to their customers, rather than retaining them as profits.
Whilst profits at major U.S. steel companies have risen fairly dramatically since President’s Trump’s inauguration, the success of this latest mandate will arguably be dependent on whether federal buyers press forward with their plans or wait and see what the future brings. If U.S. steel firms take this opportunity to develop lower-cost domestic production methods, it could successfully revolutionize the U.S. steel industry and ensure it is able to compete with international manufacturers, whether tariffs remain in place or not.
