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Higher steel costs for U.S. manufacturers and a drop in high-value exports are a potential outcome of an executive order by President Donald Trump to abandon the Trans-Pacific Partnership (TPP) trade pact, said consultancy Wood Mackenzie.
"Surprisingly despite the headlines, the reversal of this policy is not an entirely positive outcome for the U.S. steel industry," analysts wrote in a note released on Jan. 26.
Trump said the decision was aimed at keeping jobs in the U.S., but Wood Mackenzie noted the country has gained more from its steel exports than what it spent on imports.
In 2015, around 30 percent, or 11 million tonnes, of all steel imported into the U.S. came from the countries in the TPP at a value of approximately $11 billion. At the same time, 89 percent or around 9 million tonnes of all steel exported from the US was destined to these countries– at a value of approximately $12 billion.
The value of the exported material was also over 40 percent higher than what was imported with the shipped material averaging $1,400 a metric ton while what was imported cost $972 a ton.
"This implies that while of lesser volume, the U.S. – at least in part – sold higher value-add steel…The sort of steel that helps to keep the high-cost US steel-making business afloat – not necessarily a bad thing!"
In any case, overturning the TPP will have very little immediate impact on steel as most TPP trade was done with Mexico and Canada who are still covered under the NAFTA (North American Free Trade Agreement), they added. Trump has already made clear he wants to renegotiate NAFTA as well.
With the U.S. steel and manufacturing industries heavily reliant on imports, it would put pressure on manufacturers' costs to source for the steel domestically, they said.
"Theoretically, the U.S. has the resources to source this steel domestically, but not instantly and at what would likely be a higher cost. Thus weaning itself off 'imported steel' will put pressure on manufacturers' costs and ultimately the U.S. consumer will suffer," they concluded.