In some circles, the establishment narrative claims tariffs revive U.S. metal industries by shielding them from “unfair” competition. Yet, this overlooks the reality: American metal costs more not just because of tariffs but because of structural inefficiencies (e.g., energy, labor) that tariffs don’t fix. The pending tariffs amplify this gap by giving domestic producers a free pass to hike prices without addressing capacity or cost competitiveness. Meanwhile, downstream industries—employing 12 million vs. steel’s 80,000 (CSIS)—bear the brunt, inflating consumer prices (e.g., cars up $3,000, per TD Economics).
How accurate is the above assessment?
Perhaps a better question would be, “How effective” have tariffs historically been in the short and longer term?
In an attempt to answer that question, I wrote the following post in late November last year: Impact of tariffs on supply chains – 1930, 2009, 2024
Following The Money?
My assessment regarding this most recent emerging tariff war is simple: don’t follow the short-term money gain. Instead, follow the longer-term impact of continuing domestic “structural inefficiencies.” In this regard, one could reasonably suggest that the proposed tariffs are like taking steroids to improve performance without improving the athlete. What happens when you stop taking steroids – or, in this case, rely on tariffs?
Here is what my research tells me:
The long-term impact of continuing structural inefficiencies in the U.S. metal industries—such as high energy costs, elevated labor expenses, and limited production capacity—could significantly shape the sector’s competitiveness, economic role, and broader industrial ecosystem over the next decade and beyond. As of March 1, 2025, with tariffs amplifying these inefficiencies rather than resolving them, here’s a detailed look at the potential consequences:
1. Eroding Global Competitiveness
- Mechanism: High energy costs (e.g., U.S. industrial electricity at 7-9 cents/kWh vs. Canada’s 5-6 cents/kWh, per EIA) and labor costs (U.S. steelworkers average $30/hour vs. $15-20 in Brazil or China, per BLS) inflate production expenses. For aluminum, smelting consumes 30-40% of costs, and the U.S.’s reliance on expensive grid power contrasts with Canada’s hydropower advantage.
- Long-Term Impact: Without addressing these inefficiencies, U.S. metal industries (steel, aluminum) will struggle to compete globally, even with tariffs. As trade protections wane or shift (e.g., post-Trump policies), cheaper imports from efficient producers like Brazil, Russia, or South Korea could reclaim market share. By 2035, U.S. steel’s global export share (currently ~5%, per World Steel Association) might shrink further, relegating it to a domestic-only player.
2. Stagnation of Production Capacity
- Current State: U.S. steel capacity utilization hovers at 75-80% (AISI), and primary aluminum output has collapsed from 3.7 million metric tons in 2000 to 670,000 tons in 2023 (Reuters). Tariffs in 2018 and 2025 spurred short-term mill restarts (e.g., U.S. Steel’s Granite City), but investment in new capacity lags—greenfield projects take 5-10 years and billions in capital.
- Long-Term Impact: Persistent inefficiencies deter investment in modern facilities. High energy and labor costs make new plants less viable than in countries with lower hurdles (e.g., China’s 1,000+ million-ton steel capacity). By 2040, aging infrastructure (50% of U.S. steel mills are over 40 years old, per CSIS) could lead to a capacity crunch, forcing reliance on imports or driving up domestic prices as demand outstrips supply.
3. Rising Costs for Downstream Industries
- Ripple Effect: Metal-intensive sectors—construction, automotive, aerospace, and manufacturing—employ 12 million workers vs. 80,000 in steel (CSIS). Inefficient U.S. metal production, propped up by tariffs, raises input costs (e.g., steel prices up 40% post-2018 tariffs). Posts on X already flag car prices rising $3,000 due to 2025 tariffs (TD Economics).
- Long-Term Impact: Over decades, sustained high metal costs could erode downstream competitiveness. U.S. automakers like Ford or GM might offshore production to Mexico or Asia, where metal inputs are cheaper, shrinking domestic manufacturing jobs. By 2035, this could hollow out industrial clusters (e.g., Midwest Rust Belt), with GDP losses estimated at 0.5-1% annually if inefficiencies persist (Tax Foundation).
4. Environmental and Energy Transition Lag
- Energy Inefficiency: U.S. steel relies heavily on carbon-intensive blast furnaces (70% of production) rather than electric arc furnaces (EAFs), which use scrap and are 60% less energy-intensive (World Steel). Aluminum smelting’s energy demands clash with a grid still 60% fossil-fueled (EIA).
- Long-Term Impact: Without cheaper, cleaner energy (e.g., renewables at scale), U.S. metal industries will lag in the global shift to green production. By 2040, competitors in Europe or China, with stricter carbon rules and subsidized renewables, could dominate low-emission metal markets (e.g., “green steel”), leaving U.S. firms with stranded assets and higher compliance costs as carbon taxes rise (e.g., projected $50/ton by 2030, per IMF).
5. Dependence on Protectionism
- Current Crutch: Tariffs (2018, 2025) mask inefficiencies, boosting profits short-term—Nucor’s stock rose 5.6% and Cleveland-Cliffs 17.9% post-February 2025 announcement (Reuters)—but don’t fix underlying costs. Domestic steel prices hit $1,050/ton vs. $800/ton pre-tariff imports, per market signals.
- Long-Term Impact: Over reliance on tariffs breeds complacency. If trade policies soften (e.g., post-2028 election), U.S. metal industries could face a reckoning—unable to compete without protection. By 2045, this could shrink the sector’s employment (currently 140,000 combined for steel and aluminum, per BLS) by 20-30% as imports flood back, echoing the 1980s steel decline.
6. Innovation Stagnation
- Investment Gap: High operational costs divert capital from R&D. U.S. steel lags in adopting hydrogen-based production (tested in Sweden) or advanced alloys, while aluminum struggles to scale recycling (only 35% of U.S. aluminum is recycled vs. 75% in Europe, per Aluminum Association).
- Long-Term Impact: By 2040, U.S. metal industries could fall behind in high-value markets (e.g., aerospace-grade aluminum, lightweight auto steel), ceding ground to innovators like Japan or Germany. This might shrink the sector’s GDP contribution (currently ~$520 billion, per AISI) as it sticks to commoditized, low-margin products.
Broader Economic and Social Fallout
- Job Losses: While tariffs preserve some metal jobs short-term (e.g., 2,500 added post-2018), downstream job losses dwarf gains—360,000 at risk vs. 6,500 saved, per Peterson Institute. Long-term, inefficiencies could cut total employment as industries relocate.
- Regional Decline: States like Pennsylvania, Ohio, and Indiana, reliant on steel, face economic stagnation if mills can’t modernize, deepening Rust Belt decay by 2050.
- Consumer Costs: Higher metal prices cascade to housing (steel framing up 10-15%), infrastructure, and goods, adding $1,200/year to household expenses (Yale Budget Lab), eroding living standards over decades.
Critical Perspective
The narrative that tariffs “save” U.S. metal industries—pushed by Trump and echoed in outlets like the White House—ignores structural rot. Energy costs won’t drop without a grid overhaul (decades away), and labor costs won’t align with global norms barring union concessions or automation leaps. Tariffs delay the inevitable: without reform, the sector’s long-term viability erodes. Conversely, optimists argue domestic demand (e.g., infrastructure spending) could force efficiency gains—but historical data (steel output flat since 2018) suggests inertia prevails absent radical investment.
Steroid Use: What Do Athletes And The U.S. Metal Industries Have In Common
When Athletes Stop Steroids
When an athlete stops taking steroids, they face a testosterone crash, muscle and strength loss, fat gain, psychological lows, and a performance dip—starting within days and peaking over months. Full recovery varies (3-12 months with PCT, longer without), but some effects (e.g., heart strain, hair loss) may stick. For an athlete, it’s a retreat from artificial highs to a natural baseline—often lower than pre-use due to wear and tear—underscoring why many cycle back despite the risks.
When The U.S. Metal Industries Stop Tariffs
Continuing structural inefficiencies in the U.S. metal industries—high energy, labor, and capacity limits—could, over the long term, shrink global competitiveness, stunt capacity growth, burden downstream sectors, delay green transitions, deepen protectionism reliance, and stifle innovation. By 2040-2050, this might reduce the sector to a high-cost, tariff-dependent niche, losing jobs and economic clout while rivals abroad leap ahead. As of March 1, 2025, the pending tariffs highlight these flaws but offer no cure—kicking the can down a road that’s running out of pavement. Fixing this requires energy policy shifts, labor flexibility, and billions in modernization, not just trade barriers.
I will let you draw your own conclusions about today’s post’s analogy.
30
Procurement Insights
Are Tariffs The Steroid For Domestic Manufacturing Inefficiency?
Posted on March 1, 2025
0
In some circles, the establishment narrative claims tariffs revive U.S. metal industries by shielding them from “unfair” competition. Yet, this overlooks the reality: American metal costs more not just because of tariffs but because of structural inefficiencies (e.g., energy, labor) that tariffs don’t fix. The pending tariffs amplify this gap by giving domestic producers a free pass to hike prices without addressing capacity or cost competitiveness. Meanwhile, downstream industries—employing 12 million vs. steel’s 80,000 (CSIS)—bear the brunt, inflating consumer prices (e.g., cars up $3,000, per TD Economics).
How accurate is the above assessment?
Perhaps a better question would be, “How effective” have tariffs historically been in the short and longer term?
In an attempt to answer that question, I wrote the following post in late November last year: Impact of tariffs on supply chains – 1930, 2009, 2024
Following The Money?
My assessment regarding this most recent emerging tariff war is simple: don’t follow the short-term money gain. Instead, follow the longer-term impact of continuing domestic “structural inefficiencies.” In this regard, one could reasonably suggest that the proposed tariffs are like taking steroids to improve performance without improving the athlete. What happens when you stop taking steroids – or, in this case, rely on tariffs?
Here is what my research tells me:
The long-term impact of continuing structural inefficiencies in the U.S. metal industries—such as high energy costs, elevated labor expenses, and limited production capacity—could significantly shape the sector’s competitiveness, economic role, and broader industrial ecosystem over the next decade and beyond. As of March 1, 2025, with tariffs amplifying these inefficiencies rather than resolving them, here’s a detailed look at the potential consequences:
1. Eroding Global Competitiveness
2. Stagnation of Production Capacity
3. Rising Costs for Downstream Industries
4. Environmental and Energy Transition Lag
5. Dependence on Protectionism
6. Innovation Stagnation
Broader Economic and Social Fallout
Critical Perspective
The narrative that tariffs “save” U.S. metal industries—pushed by Trump and echoed in outlets like the White House—ignores structural rot. Energy costs won’t drop without a grid overhaul (decades away), and labor costs won’t align with global norms barring union concessions or automation leaps. Tariffs delay the inevitable: without reform, the sector’s long-term viability erodes. Conversely, optimists argue domestic demand (e.g., infrastructure spending) could force efficiency gains—but historical data (steel output flat since 2018) suggests inertia prevails absent radical investment.
Steroid Use: What Do Athletes And The U.S. Metal Industries Have In Common
When Athletes Stop Steroids
When an athlete stops taking steroids, they face a testosterone crash, muscle and strength loss, fat gain, psychological lows, and a performance dip—starting within days and peaking over months. Full recovery varies (3-12 months with PCT, longer without), but some effects (e.g., heart strain, hair loss) may stick. For an athlete, it’s a retreat from artificial highs to a natural baseline—often lower than pre-use due to wear and tear—underscoring why many cycle back despite the risks.
When The U.S. Metal Industries Stop Tariffs
Continuing structural inefficiencies in the U.S. metal industries—high energy, labor, and capacity limits—could, over the long term, shrink global competitiveness, stunt capacity growth, burden downstream sectors, delay green transitions, deepen protectionism reliance, and stifle innovation. By 2040-2050, this might reduce the sector to a high-cost, tariff-dependent niche, losing jobs and economic clout while rivals abroad leap ahead. As of March 1, 2025, the pending tariffs highlight these flaws but offer no cure—kicking the can down a road that’s running out of pavement. Fixing this requires energy policy shifts, labor flexibility, and billions in modernization, not just trade barriers.
I will let you draw your own conclusions about today’s post’s analogy.
30
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