Steep new tariffs on steel and aluminum ordered by President Donald Trump Thursday stoked fears in Louisiana of a net economic hit from the move, with economists warning of threats to the state’s petrochemical, fabrication and booming LNG industries.
Steel and aluminum manufacturers, meanwhile, championed the move as a long-overdue leveling of the playing field. Cheap foreign steel and aluminum have flooded the global market in recent years, devastating the domestic industry, leaders said.
Trump, surrounded by steel and aluminum workers at the White House, declared the industry has been “ravaged” by aggressive foreign producers, and said the “betrayal is now over.” The move imposes 25 percent tariffs on steel and 10 percent tariffs on aluminum imports, and are expected to go into effect in 15 days.
His order exempted, at least temporarily, Mexico and Canada, giving the president a bargaining chip for a renegotiation of the North American Free Trade Agreement. He also left some wiggle room in the order, indicating he could exempt or lessen tariffs for other countries, especially military allies.
Despite the exemptions, several Louisiana economists warned the tariffs put the state’s economy — including billions of capital projects in the early engineering and design phases — at risk.
Nationally, several industry trade groups — ranging from the automotive and homebuilding industries to retailers — pushed back against the necessity of the new policy, saying the tariffs will lead to higher costs for businesses and could spark a broader trade war.
“We have a few steel producers that will gain a little bit but that will not offset the losses at all,” said James Richardson, an LSU economist. “It’s going to be a net negative.”
The more immediate impact will be on the industries that use steel and aluminum as materials. Petrochemical projects along the Mississippi River, LNG export facilities in Lake Charles and the offshore oil and gas industry are expected to see higher costs of construction.
Economist Loren Scott said he’s worried the higher prices could push some of those planned projects into the red.
“Steel makes up only 3 or so percent of those, but when you have a $10 billion project, that’s 300 million bucks,” Scott said. “This is not good for us.”
Other countries could also be incentivized to fabricate products with steel or aluminum before shipping it over to the U.S., thereby avoiding the tariffs. Ed Bee, who runs the Madisonville-based economic development consulting firm Taimerica, said things like offshore oil platforms and ships could be built elsewhere, meaning Louisiana firms who currently build them could suffer.
Bee, who also teaches international economics at the University of Southern Mississippi, said the tariffs create “a few” jobs in the steelmaking and aluminum-making industry, but pose a “serious risk” to the Louisiana economy.
Louisiana is particularly exposed to the tariffs, two studies out this week found. The Tax Foundation put Louisiana at No. 10 in the U.S. for the amount of money it stands to lose under the new scheme. While that study came before Trump announced Canada and Mexico would be exempted, the think tank warned the state’s economy could still lose upwards of $300 million when factoring in the exemptions.
The Brookings Institution said Louisiana has the second-highest exposure to the tariffs. Louisiana’s steel and aluminum imports comprised 7.3 percent of the state’s total imports last year, according to Brookings, a number that trails only Missouri for the highest share. The U.S. average is 2 percent.
Assuming Mexico and Canada stay away from the tariffs amid NAFTA talks, the U.S. and Louisiana could see an uptick in steel and aluminum from those countries, said Stephen Barnes, an LSU economist. But that only “softens the blow a little bit.”
The fear of a trade war has more broadly belied Trump’s tariffs in recent weeks. While the rising costs for industries that use steel in construction projects is a near certainty, the likelihood and exact impacts of a trade war were less immediately clear.
“Especially given our unique role at the mouth of the Mississippi, we’re facing perhaps greater exposure to the downsides of interfering with international trade,” Barnes said. “If we really move down that road toward a trade war, things could get ugly.”
Barnes also said several rounds of negotiations between the Trump administration and other countries likely stand between Thursday’s announcement and a full-blown trade war.
Paul Gilbert, a principal in Alabama-based Metalplate Galvanizing, which opened up a Jennings plant in 2015, said the talk of trade war and an economic downturn from the tariffs are overblown. He called the tariff debate a “political hotpot” that won’t end up having a significant negative effect.
It will probably have a positive effect on his industry, though. Gilbert’s plant in Louisiana has been operating at about 40 percent capacity in recent years. While he hasn’t looked at the details of Trump’s order yet, he anticipates ramping up production and staffing if they shake out in his favor.
“We easily feel we could be within 80 percent capacity within a year or so,” he said. “That would almost triple our employment.”
Nucor, the North Carolina-based steelmaker that has a facility in Louisiana, said the tariffs will help the U.S. industry finally compete with foreign producers, which have used “unfair” practices to flood the global market. The company has said it plans to build a steel mill at its St. James Parish site. Benteler Shreveport and Noranda Bauxite & Alumina are also expected to benefit.
The Port of New Orleans, however, could be another loser under the tariffs. President and CEO Brandy Christian said last week the port is particularly sensitive to tariffs on imported steel and aluminum. In the 2017 fiscal year, 30 percent of the port’s total cargo tonnage came from steel imports.
And exempting Mexico and Canada doesn’t help the port, as the two countries don’t use the port to ship steel to the U.S., according to a list of the top steel exporting countries provided by the port. Japan, South Korea, Turkey, Vietnam and Russia were the top five steel shippers through the port in 2016, the most recent available data.
“Current exemptions of Mexico and Canada do not help offset potential threats to Louisiana,” said World Trade Center of New Orleans CEO Caitlin Cain, citing the countries’ negligible steel trading through the port.
Following the 2002 steel tariffs by President George W. Bush, Port NOLA suffered a 46 percent decline in steel imports, Christian said. The Trump administration’s tariffs are expected to be steeper than those.
Louisiana Economic Development Secretary Don Pierson, who last week said disruption of global supply chain relied upon by ports and industry is a concern, called the move to negotiate with Canada and Mexico a “prudent approach.”
Still, Gary Shapiro, president and CEO of the Consumer Technology Association, which represents more than 2,200 companies, said the tariffs "could ultimately cost far more American jobs than it would create, and raise costs on consumer products."
"The imposition of tariffs will undoubtedly result in previously uninvolved sectors being retaliated against and create a dangerous race to the bottom, which is a threat to our domestic economy and the entire global trading system," Shapiro added.
The Alliance of Automobile Manufacturers warned the tariffs will drive up the price of steel made in the U.S. — a cost that it predicts will be passed along to consumers through higher prices on vehicles.
The National Association of Home Builders noted the tariffs would pile on more costs on builders and, ultimately, homebuyers.
The head of the National Retail Federation, whose members include department store chains, grocery stores and other merchants around the world, also raised objections to the tariffs Thursday, calling them a tax on all Americans.
"A tariff is a tax, plain and simple," said Matthew Shay, president and CEO of the NRF. "Consumers are just beginning to see more money in their paychecks following tax reform, but those gains will soon be offset by higher prices for products ranging from canned goods to cars to electronics."