US Steel and Aluminum Tariffs

Hello, okay. Today's rant is on the US Steel and aluminum tariffs. I gotta say, real rookie mistake. Putting tariffs on inputs and not outputs. US consumers do not directly purchase steel or aluminum, or even the byproducts of imported steel. and aluminum, what they purchase are goods whose value add has been increased multiple times by multiple companies after the initial input was taxed in tariffs. The other part of this is we've already been down this road . We've already put the same exact tariffs on the same exact countries. In 2018, we have case studies. You can go read. You can see the effects of those tariffs. What happened was US producers overbuilt capacity. There was a huge bubble. Demand only rose modestly. It was a fraction of the additional capacity that they added. And prices extraordinarily outpaced the amount of additional production created inside the United States. It didn't have the intended effect of shifting consumption by US manufacturers from imported mostly Canadian steel to US Steel. They just went down the list of the next cheapest and the next cheapest alternative and they found some esoteric supply chains somewhere else where they could substitute Canadian steel for you for some other steel for Canadian steel. And you created this boom and bust cycle. You hurt a lot of US steel producers. You hurt a lot of US manufacturers and the benefits just never materialized. Now, we're talking about doing this again. You can look at shale. What did shale do after they had a boom and bust cycle? And prices went up and they crossed their arms and said we are not building additional capacity. No, sir, we're not building any additional capacity. We've been through this before. We got screwed the last time we built additional capacity and we're not going to make the same mistake twice . And that's exactly what US steel producers and Aluminium producers are going to do. They're not going to see some tariffs which could come and go in a 24 hour news cycle and say, oh, let's build a bunch of new refining capacity or let's start extracting iron ore and Alabama and Mississippi again. They're not going to do any of that. Because US steel and Aluminium producers have a different market than imported Canadian steel. They found a different comparative advantage. Quality, it's time to market. There's an entire industry up and down the supply chain that all they do is they sell you overpriced cut steel pipe. And they get it to you yesterday. They charge you exorbit ant prices for it, but they ship it on semi-trucks in an inefficient way. They cut it locally. They charge an arm and a leg for it, but their entire industry is serving this niche for like you have a project that needs some small quantity of some specific product. You need it yesterday and they can get it to you in two or three days. They can get it cut today on a truck tomorrow and it'll be delivered ASAP. That's an entire industry with its own comparative advantage. And these producers are not going to just quit serving, they're not going to stop serving that market as soon as the tariffs are announced and shift their output to low end , low margin steel production. They're going to just charge more for the exact same services they've been delivering. They already have their own comparative advantage and their own niche in the market . And if these people would read the case studies, it's all there. So, what does that show you? That shows you. This is not like a team of people who set goals and they find experts to like smartly implement whatever policy will achieve those goals. They're mucking around with the internals of a multi trillion dollar economy and multi trillion dollar, multi billion dollar industries and just seeing what happens. They're going off of gut feelings and comments and solutions. And this is just not bound to increase US competitiveness. This isn't bound to have any material beneficial effect. So, why is it that, if you want to look at another angle, maybe it's a national security angle, there's an argument there, we should increase US domestic steel production capabilities for national security reasons. This is a flimsy argument too. You have to create investment vehicles and programs to de-risk the expansion of production. There's an entirely different set of things you do if you want to do that. It's like what we did with the chips act. We de-risk the process of increasing chip production in the United States and that incentivized companies to take risks before demand was 100% reliable. It showed that the US government had a long-term commitment towards purchasing US-made goods even if they were at a higher price comparatively. The other end of what you need to do, not to say that tariffs would have no effect in conjunction with this, but it's the other side of what you would be required to do to expand production. The other side of that is, if it's for national security purposes, we already had that sewed up. What you want is your largest trading partner, your biggest ally, I think it's the longest land border in the US. We share with Canada. You want them to export all of their steel and aluminum and oil to the United States. You want to go find other partners who they might trade with. You want to incentivize them to tailor their entire supply chain to serving the US market. That's what US industrial policy has done for the last five decades. We have tailored built this entire thing so that 75% of oil production goes from Canada to the US and steel aluminum. They're huge numbers like that. Basically, there's huge industries in Canada where the US is the only customer. They don't sell domestically. They don't sell internationally. It all just basically goes across the border on a train to the United States or a pipeline. And that benefits international security. If you force them to go find alternatives, if we end up in a situation where Canada is like, "Oh, we got to figure out how to put crude and ships and sell it to Europe." Well, you're doing the opposite. Right. [BLANK_AUDIO]