https://crsreports.congress.gov
August 12, 2021
U.S. Steel Manufacturing: National Security and Tariffs
Steel plays a significant role in national security and U.S.
Department of Defense (DOD) operations. While the defense
industry often integrates steel into components or structures
of military platforms and weapon systems, it also has other
applications associated with homeland security and critical
infrastructure. In recent years, some in Congress have come
to view global overcapacity and excess production of steel,
which has tended to result in a reliance on often cheaper
imported steel instead of domestically produced steel, as a
potential threat to U.S. national security. These Members
have advocated boosting U.S. steel production as a means of
ensuring a stable domestic supply for national security
purposes.
Steel Tariffs under Section 232
The Trump Administration determined foreign-made steel
“threaten[ed] to impair national security” and imposed global
tariffs of 25% or quotas in March 2018 under Section 232 of
the Trade Expansion Act of 1962. Congress delegated some
of its authority to regulate foreign commerce to the executive
branch through Section 232, a statute that allows a President
to restrict imports if Commerce finds the imports threaten or
impair U.S. national security. Observers, however, noted that
U.S. military applications have historically represented a
relatively small share of annual domestic steel production
(3% in 2020, according to the American Iron and Steel
Institute (AISI), and raised concerns about the potential
negative impact of tariffs on U.S. defense allies.
The Biden Administration is reviewing whether to keep,
remove, or amend the existing tariff and quotas, which have
no statutory expiration; is working internationally on the
interrelated issues of global steel overcapacity and dumping;
and is tightening government procurement rules for steel.
Some Members of Congress support keeping the tariff
protection in place, while others oppose the duty due to
increased input costs for downstream industries.
Domestic Steel Manufacturing
U.S. steel manufacturing rose in 2018 and 2019; however, in
2020, the COVID-19 pandemic contributed to a drop in
demand that affected production, resulting in shutdowns and
idled or reduced steel making. As manufacturing has
recovered, U.S. production of steel has risen. Federal Reserve
Board data shows as of June 2021 monthly production rose
58% from its low in May 2020. In 2020, U.S. annual
production of raw steel fell to an estimated 72 million metric
tons from 87.8 million metric tons in 2019, according to the
United States Geological Survey (USGS).
U.S. producers currently make steel in two main ways
(Figure 1). One way is in integrated steel mills that turn coal
into coke, combining the coke with iron ore to produce pig
iron, and then melting it in a basic oxygen furnace to produce
steel. Many integrated steel mills have closed, partly because
they are more expensive to operate than newer facilities. In
2020, integrated mills produced 30% of total raw steel made
in the United States. USGS notes that, at the end of 2020,
two companies—U.S. Steel and Cleveland-Cliffs—operated
integrated steel mills at 11 U.S. locations.
Minimills provide a second way to make steel. Minimills
tend to have lower fixed capital and energy costs than
integrated steel mills and a largely nonunion workforce. In
2020, this method—which primarily uses recycled steel scrap
melted in an electric arc furnace—accounted for 70% of all
domestically produced raw steel. Over 50 companies,
including Nucor and Steel Dynamics (ranked as the nation’s
first- and fourth-largest steel producers, respectively, in
2019), operate minimills in the United States. Since 2018,
several minimill operators have announced or made new
investments, upgrades, or plant capacity expansions in the
United States. Increased prices linked to the tariffs and
quotas on imported steel may be a factor in these decisions.
Figure 1. The Raw and Recycled Steel Making Process
Source: CRS adapted figure from AISI Profile 2019-2020, p. 10.
U.S. steel production also includes slab converters (also
called re-rollers) that use a third, alternative manufacturing
model. These companies purchase semi-finished steel slabs,
mostly from foreign suppliers, to use as feedstock to make
finished sheet steel products in the United States.
Factors Affecting Domestic Production
One longstanding concern for U.S. domestic producers is
global overcapacity, which the Organisation for Economic
Co-operation and Development (OECD) estimated at around
700 million metric tons of steel in 2020. Global efforts to
address this issue over many years have been largely
unsuccessful. Chinese overcapacity is widely viewed in the
United States as a potential threat to U.S. domestic steel
production. Although China accounted for more than 55% of
worldwide steel production in 2020, about 2% of U.S.
imports of steel mill products come directly from China due
partly to existing U.S. antidumping and countervailing duties
on Chinese steel.
U.S. imports of steel originate largely from U.S. partners: In
2020, Canada was the biggest U.S. supplier of steel,
measured in metric tons, followed by Brazil and Mexico.
Total import penetration dropped to a five-year low of 23.1%
of U.S. demand in 2020, from 33.8% in 2015, according to
the U.S. Department of Commerce (Commerce).
The worldwide hot-rolled band steel price—a proxy for the
price of steel used in everything from microwave ovens to
bridges—is at a decade high. The U.S. price of steel
