President Donald Trump just imposed 25% tariffs on steel imports and 10% import taxes on aluminum.
Those tariffs aren’t ideal – and they could lead to a trade war if Trump’s team isn’t careful.
But the desperate hand-wringing we’re seeing from the Washington and Wall Street crowds is, frankly, unseemly.
The Associated Press says that U.S. steel production is doing just fine, because the economy is now growing at roughly 3% a year.
Trade Partnership, a pro-trade business group, predicts that the tariffs will lead to 146,000 American job losses.
And Ira Shapiro, one of the architects of the North American Free Trade Agreement, told CNBC that President Trump “has done incredible damage to our relationship with Mexico, some to Canada and a lot to the European Union, all of which was not necessary and not desirable.”
There’s a problem here. All this naysaying presents a simplistic – and I would say false – narrative.
According to MarketLine, steel will be an $865 billion global industry by 2020. And we here in the United States are missing out… almost entirely. Of the world’s top 12 steel producers, only one is U.S.-based.
So if we do this the right way – if Trump’s seemingly reckless plan gets everyone rushing to the negotiating table – domestic firms will clearly benefit.
That said, Trump’s tariffs are far from a panacea.
The steel industry is a laggard in part because it hasn’t kept up with the times. And so steelmakers and other metal firms must invest in the innovative digital tech that is transforming so many other industries.
I’m talking about a technology that unites hardware, software, sensors, robotic systems, and more so that steel factories can operate far more profitably.
Today, factory-floor automation technology is worth roughly $109 billion. MarketsandMarkets says that spending in the sector will swell to $153 billion by 2022.
The firm I want to show you today is transforming steel companies – and firms in other hidebound industries – into advanced tech players.
It’s minting cash for its shareholders along the way.
From Goat to Hero
To understand what’s happened to domestic output we need to unwind the clock by 45 years. Frank Giarratani, an economist at the University of Pittsburgh, says U.S. steel production peaked in 1973 at 137 million metric tons.
Last year, according to data compiled by Statista, that figure stood at just 82 million metric tons. That’s a 40% decline during a period in which real GDP more than tripled to $17.3 trillion.
And while the quality of U.S. steel has improved dramatically, the industry is still well behind China, which is now the world leader in steel, accounting for nearly half of all output. It now makes more steel than all of North Americaand the European Union combined.
In fact, China makes too much steel. To cope with overcapacity, the Chinese steel industry is actually laying off some 1.8 million workers and selling steel around the world at sharply reduced prices.
Now here’s what I see happening.
The tariffs will encourage China to accelerate its reduction in overcapacity.
Not only that, but they’ll help solve a much bigger problem – Beijing’s theft, via the Peoples Liberation Army of cyber thieves, of American technology. These tariffs are going to help “persuade” Beijing to stop that practice as well.
If things go that way, Trump will look like a hero – not the goat the mainstream media is portraying him as.
But like I said, steelmakers still need some high-tech help – tariffs or no tariffs.
And that’s where my latest recommendation to you comes into play.