Trading steel and sun in a changing world

The sun. (PHOTO: NASA, Flickr CC)

The sun above our heads and the steel that comprises our highways, buildings, cars and appliances might not seem like they have much in common. But there’s a powerful truth behind the sun. The final stage of a star’s life happens when nuclear fusion produces iron at its core, causing it to explode. At once, all of the building blocks for life spew across the universe.

In this manner everything in our galaxy was created. Our sun was made this way. Our planet. The Mesabi Iron Range is nothing but a particularly concentrated hunk of iron on a planet caked with the stuff. The sun nurtured life. Life made people. People made cars.

But we leave the big picture to enter a smaller one concerned with trade among the nations of Earth.

Here in the United States, a mostly capitalistic system prioritizes the market, Adam Smith’s “invisible hand” of supply and demand. That means we mine iron ore and make steel based on how much of it we can sell. That contrasts with the hybridized form of communism now used by the world’s most populous nation of China.

In China, the cost of mining and steelmaking is subsidized by the government based on how much steel is needed and also on the necessity of keeping a vast population working. This system allows the exporting of steel at a loss, called “dumping,” and it can wreak havoc on market-based systems receiving the cheap products.

Any day now, President Trump’s administration is expected to issue strict new tariffs on foreign steel. Wall Street analysts certainly expect the move, and steel company CEOs are howling for it. Trump ran on trade policy that prioritized tariffs like these.

However, as I’ve explained before, issuing harsh tariffs is complicated. There are winners and losers in the American economy, especially if the move triggers an all-out trade war. That’s why steel tariffs tend to be used sparingly and temporarily.

And the move might not affect Chinese trade alone. Already the European Union issued serious concern about the potential new tariffs. Many highly refined steel products we use in the United States come from places like the UK, Germany or Sweden. (One of the reasons is because we literally don’t make some of these products here).

Sun tariffs

It’s been interesting to wait as long as we have to find out about the steel tariffs. Because Trump’s commerce department had no trouble issuing tariffs on Chinese solar panels, solar cells (and washing machines) last month. These tariffs were far more damaging to short term interests, including a lot of American jobs, not to mention cooling the rapidly expanding solar panel market in the U.S. It seemed to have more to do with blunting solar energy in favor of fossil fuels.

Moreover, the administration’s claim that this will spur American solar energy production rings hollow. We’re years away from being able to scale up, and still dependent on foreign imports.

A classic example is the botched effort to produce solar panels here in Northern Minnesota. The IRRRB poured millions into Silicon Energy, a solar panel producer in Mt. Iron, over the early 2010s. The company badly misread industry trends and went broke, employing few people in the process.

A Canadian company based in Sault Ste. Marie, called Heliene now seeks to build its solar products in the failed plant. The IRRRB issued a $1.75 million loan to the company in January. However, while they build “American-made” solar panels, the company imports low cost solar cells from China.

From a Jan. 25 Mike Hughlett story the Star Tribune:

[Heliene President Martin] Pochtaruk said he doesn’t believe the Mountain Iron plant will be significantly affected by a 30 percent tariff on foreign-made solar panels and solar cells, which was announced Tuesday by President Donald Trump’s administration.

There’s an allowance in the tariff for a certain amount of foreign-made solar cells to be imported without a duty, Pochtaruk said.

That either a risky proposition or shows that tariffs might not have the stopping power they intend.

Back to steel

Here in Northern Minnesota, demand for iron ore has kept our mines running strong for more than a year now. Domestic steelmakers have prospered. What drives this push for tariffs is really a fear that dumping could limit these gains, and that the next price drop could hit American companies harder than the last one.

Strict new tariffs will send steel stocks soaring, or at least that’s the plan. But will the domestic industry actually use the revenue to build the steelmaking technology of the future? Will workers benefit? Will communities? Short term, probably. But long term? Is there such a thing as long term benefit for American workers in this environment?

Complicated questions. It might be easier to understand the nature of the universe. And it’s good cause for the Iron Range to spend time working on economic variables we can control rather than the many we don’t.

Speak Your Mind


This site uses Akismet to reduce spam. Learn how your comment data is processed.