Cleveland-Cliffs Sees Tariffs as a Win

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Protectionism may be paying off for the U.S. steel industry and it may be time for the Canadian government to follow suit with tariff plans of its own, the head of Cleveland-Cliffs Incorporated (Cleveland, Ohio) said.

U.S. President Donald Trump has upended global trade and created headwinds for economic growth with a trade policy that's seen tariff pressures escalated one day, only to be reversed the next. He's been relatively consistent, however, on his policy on steel, doubling tariffs--a tax on imports--from 25% to 50% on his return to the White House.

Support has been lopsided, and pessimism is becoming entrenched. The Beige Book, a summary of economic activity across the various U.S. Federal Reserve districts, indicates economic activity softened in only two of the 12 districts and economic activity had improved slightly to early June.

Many firms, however, are passing the burden of tariffs onto consumers, and consumer-level inflation already showed a slight increase from May to June.

"Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer," the Beige Book, published last week, says.

U.S. steel producer Cleveland-Cliffs, however, hasn't felt the pressure yet, based on returns for the second quarter. It recorded a second-quarter sales volume of 4.3 million tons, a 7.5% improvement over year-ago levels.

Lourenco Goncalves, the chairman, president and chief executive officer at Cleveland-Cliffs, said Trump's policies were a net positive on his industry so far.

"We expect this trend to continue, promoting the resurgence of the American automotive industry, supported by a thriving domestic steel industry," he said.

Tariffs cost General Motors Company (GM) (Detroit, Michigan) about $1 billion in revenue this year, the company reported Tuesday. Revenue for Cleveland-Cliffs of $4.8 million, meanwhile, was down from levels closer to $5 billion a year ago.

Executives at Cleveland-Cliffs added that a five-year contract to supply steel slab from Indiana Harbor to an unnamed competitor is ending and will not be extended, because lower material prices over the last few months were net-negative on its profitability.

Goncalves was undeterred in his praise for policies embraced during Trump's second, non-consecutive term in office. Even though the U.S. remains a net importer of steel, he said there are signs of a resurgence in the domestic auto industry due to "a thriving domestic steel industry."

Canada, he said, can do the same if it adopts protectionist measures of its own. Goncalves claimed Canada's steel industry is exposed to dumping, a practice where foreign suppliers sell their goods at below domestic-market prices. "So-called free-trade agreement friends," he said, are using Canada as a source for their own overproduction.

"Our message is very clear and easy to understand," he said. "If Prime Minister Carney and his cabinet want to have a steel industry in Canada, they should put in place significant trade protections."

Canada last week said it would tighten its tariff rate quota for steel products from countries that do not have a free trade agreement (FTA) with Canada, including China. Any steel products exported to Canada from non-FTA countries more than half the amount that was shipped in last year will be subject to a 50% tariff.

Canada's low-carbon steel producers could find relief in the European Union. Following a gathering of ministers from the G7 in Alberta last month, Canada's prime minister announced his government had brokered a free-trade deal with the European Union.

The U.S. outpaces Canada in total steel production capacity, but Canada's sector is among the lowest polluters in the world.

Cleveland-Cliffs has eight plants in Canada, all of which are in Ontario, where it's working in stamping for automotive parts such as fenders and hubcaps. The company in the first quarter said it wanted to cut 2025 capital expenditures from $700 million to about $625 million, boosting its financial standing further by fully or partially idling six facilities.

Industrial Info is tracking about $2.7 billion worth of active and proposed projects across the U.S. and Canada from Cleveland-Cliffs.

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