Good Tariffs Make Good Neighbors?

How should a global, vertically integrated steel producer adapt to protectionism?  ArcelorMittal grapples with uncertainty in Trump’s America and abroad.

Act 1: New Age of Protectionism

In April 2017, President Donald Trump issued a memorandum prioritizing federal trade actions to protect the domestic steel industry.  While isolationism per se is not a novel concept, the unique feature of the April memorandum was the tool with which President Trump pursued this policy.  The Presidential Memorandum initiated an investigation under the Cold War era Trade Expansion Act of 1962 via Section 232 [1].  Why does this matter?  First, because the law gives the president unilateral power to affect trade, without Congressional approval [2].  Second, because the law has only been implemented in 26 reviews since inception, only eight of which found a significant threat to national security.  The argument for its use today is that America’s ability to independently produce steel is a prerequisite for national defense [2].

Act 2: Don’t Worry, Be Happy?

On May 24, 2017, more than 35 panelists arrived at the US Department of Commerce Auditorium in Washington DC to participate in a public hearing for the investigation.  The speakers represented the spectrum of stakeholders, including CEOs of steel mills, the International President of the United Steelworkers Union, largely in support of stricter trade regulations.  The CEO of ArcelorMittal USA and the CEO of ArcelorMittal Tubular Products North America were also in attendance [3].

ArcelorMittal is one of the world’s largest metals and mining corporations.  The company operates steel production facilities, iron ore and coal mines in 18 countries and has capacity to produce 113 million tonnes of crude steel [4]. As the largest steel producer in North America and Europe, ArcelorMittal has publicly applauded anti-dumping protections [5].

Since publication of the Memorandum, the company has continued to closely monitor trade cases against countries including China, Russia, Ukraine and Brazil.  Given the environment of uncertainty around the state and scope of future regulations, ArcelorMittal’s direct response to the investigation has been limited to petitioning in favor of trade restrictions.  In the medium term, they have also continued to update and modernize their facilities.  Most notably, the company plans to invest approximately $200 million in structural changes in their Indiana facility to optimize its US footprint and reduce costs [6].  These updates will position the company well to take advantage of future whitespace in domestic steel demand.

Act 3: Measured Optimism

It’s easy to see why ArcelorMittal would be bullish on protectionism.  Large quantities of foreign, low-cost steel lower the overall domestic market price of steel, making it more difficult for higher cost producers such as ArcelorMittal to compete [5].  ArcelorMittal’s average steel selling prices have increased by ~5% between Q1 and Q2 2017 alone [6].  However, ArcelorMittal should proceed cautiously, being thoughtful of the potential secondary and tertiary consequences of broad regulatory actions.

First, the definition of “Made in America” is yet unclear.  Is the critical factor where manufacturing is domiciled?  What about raw materials source?  While ArcelorMittal owns and operates mines in the US, the company’s overall self-sufficiency rates are only 55% and 15% for iron ore and coal, respectively [5].  Additionally, ArcelorMittal’s Canadian operations produce intermediate steel products that are further processed in the US [5].  A strict definition of “Made in America” could preclude use of these Canadian products.

The protectionist movement could also further incentivize steel-intensive manufacturers to relocate facilities offshore.  Imports of steel-containing goods increased by approximately 6 million tonnes in the last decade [7].  The American Automotive Policy Council, which represents Chrysler, Ford and GM, submitted a letter to the Department of Commerce arguing against broad applications of tariffs lest the benefit to the steel industry are offset by harm to the automotive industry [8].

Finally, trade partners to the US may implement countervailing duties in retaliation to tougher trade borders in the US.  India has already imposed anti-dumping duties on certain steel products from the United States and European Union to reduce imports and protect its domestic producers [9].

Act 4: Hoping for the Best, Preparing for the Worst

The Secretary of Commerce has until Q1 2018 to present his findings to President Trump [2].  Further ambiguity exists regarding the required lead time to implement changes

Given the additional risks identified in the section above, ArcelorMittal should take proactive measures to protect itself from future shocks.  In addition to continuing to monitor changes in Washington, ArcelorMittal should take advantage of the current increase in steel prices to lock in long term customer contracts, secure supplier contracts for domestically sourced raw materials, and invest additional capital expenditures into maintaining and potentially increasing the capacity of its facilities worldwide.  Even if there are no adverse consequences of the investigation, by taking these actions, ArcelorMittal has the potential to emerge as a more self-sufficient steel producer.


  1. Given the highly politicized nature of protectionist policies, how should ArcelorMittal balance its businesses in the US and internationally?
  2. How should ArcelorMittal’s relationship with its customers (such as Ford, GM and Chrysler) change in the uncertain regulatory environment?


Word count: 795 (excluding headers)





[1] Department of Commerce United States of America, “Presidential Memorandum Prioritizes Commerce Steel Investigation,”, accessed November 2017.

[2] Thomas Biesheuvel and Jonathan Stearns, “How Trump’s ‘Hammer’ on Chinese Steel Could Hit the U.S.,” Bloomberg Politics, August 2, 2017,, accessed November 2017.

[3] Remarks made at the Steel 232 Investigation Public Hearing, US Department of Commerce Auditorium, Washington D.C., May 24, 2017, From transcript provided by, accessed November 2017.

[4] ArcelorMittal, “Who We Are, At A Glance”,, accessed November 2017.

[5] ArcelorMittal. 2016 Annual Report.

[6] “Bernstein’s 14th Annual Pan European Strategic Decisions Conference”, Presentation, September 27, 2017, ArcelorMittal, Luxembourg City, Luxembourg.

[7] Remarks made at the Steel Survival Strategies XXXII Conference, World Steel Dynamics, Marriott New York Marquis, New York, June 26 – 28, 2017, From transcript provided by World Steel Dynamics, accessed November 2017.

[8] American Automotive Policy Council, “United States Investigation Under Section 232 of the Trade Expansion Act of 1962 To Determine the Effects on U.S. National Security of Imports of Steel”,, accessed November 2017.

[9] Reuters Staff, “India slaps anti-dumping duty on some stainless steel imports”, Reuters, October 25, 2017,, accessed November 2017.



Preparing General Motors for the Effects of Isolationism and Trade Disruptions


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Student comments on Good Tariffs Make Good Neighbors?

  1. Applying the rules of finance to ArcelorMittal, diversification will be key for their business. Given the highly politicized debate over protectionism, and the possibility of such rules being overturned under the next president, the company should strike a balance between its domestic and foreign businesses. Focusing too heavily on the US would be a mistake given the volatility likely in such a strongly divided political climate.

    Also, as you alluded to, ArcelorMittal should also advocate for more a more flexible definition of “Made in America” given their reliance on Canadian intermediate products. Lobbying the FTC with the argument that final processing in the US is the most critical step of production might be effective for helping their business through the current era of isolationism.

  2. DC, this is such a thought-provoking post, particularly because my post focused on a company that is none too pleased with the new age of protectionism. Responding to the title of your post: tariffs do not good neighbors make, methinks!

    I wrote about General Motors, whose operations and profitability rely on a multi-national supply chain. As you note in your post, the auto industry is a significant source of revenue for steel production companies. Unfortunately, the auto industry would be adversely impacted by protectionism because import tariffs would cut into the cost efficiencies that automakers realize by manufacturing parts in cheaper, foreign markets. In the face of sudden and extreme import taxes, it is not clear that auto companies could sustain their product offerings. And as you note below, any impact on production would adversely impact ArcelorMittal, too. This domino effect applies to any company that uses steel products and maintains a global supply chain.

    I also agree that another huge risk that ArcelorMittal might be overlooking is retaliatory tariffs imposed on the US by other countries. In my research, I learned that costly US import tariffs often end up hurting US industry. By way of example, when the US failed to comply with a NAFTA provision that permitted Mexican truckers on US roads in 2009, Mexico responded with duties of up to 25% on farm goods, resulting in $984 million of lost revenue for US farmers exporting to Mexico. Similarly, when the US imposed antidumping duties on Chinese solar panels in 2012, China responded with duties against US silicon, which prompted Hemlock Semiconductor to renege on its planned construction of a $1.5 billion silicon plant in the US.

    Hence, based on my limited research, I’m tempted to say that ArcelorMittal should take a longer-term view on protectionist trade policy, and reconsider its position.

  3. I agree with you and Chris a with regards to the definition of “made in America”, a definition that is open for interoperation will leave room for companies to operate more openly and globally, however, given the litigious culture of the US I think this would lead to significant losses to the companies and deter focus from business to lawsuits.

    ArcelorMittal should maintain its relationship with its main clients given that its at the bottom of the supply chain and fight against isolationism. it was not clear to me that ArcelorMittal would gain any market share on the contrary I believe the company might lose its customers if they elect to continue to produce internationally and pass on taxes to consumers.

  4. DC, great article! I had a few thoughts while reading it.

    (1) In today’s globalized economy, it is worrying to me that ArcelorMittal would want to be reliant on protectionism. They are clearly producing steel at a higher cost than their foreign competitors, and according to the economic theory of comparative advantage [1], they should leave most of the production to the lowest-cost producers. If they are producing at artificially-elevated levels, that would lead to inefficient allocation of resources on all fronts, for example, (i) investors are incorrectly parking their capital at ArcelorMittal instead of another company that will allocate resources more efficiently, and (ii) AlcelorMittal is artificially inflating the demand for steel workers, and preventing these people from potentially finding other jobs that are more valuable to the U.S.

    (2) The new administration will likely enforce protectionism by elevating import tariffs on foreign imports of steel. An unwanted result of this is that end consumers pay higher prices for steel, both in the near-term, and the long-term. In the near-term, domestic steel producers like ArcelorMittal will not be able to ramp production quick enough to replace the supply from China, so local contractors and other steel customers will have no choice but to pay the higher tariff-adjusted prices for China steel. In the long-term, domestic steel producers like ArcelorMittal cannot produce as cheaply as China anyway, and will end up charging their customers a higher price than they used to pay for China steel. In fact, a protected oligopolistic industry like U.S. steel probably colludes to charge higher prices to customers. Bottom-line: the end consumers pays up for ArcelorMittal’s protectionism [2].


  5. The need for ArcelorMittal to protect itself against the risks that protectionist policies have on its operations is critical. However, worse than a change in policy are fluctuating policies, which is likely to continue to be a pattern given the magnitude of our political divide. ArcelorMittal will have to negotiate long-term contracts with customers with uncertain tariffs in mind, and though a cost-sharing agreement would be ideal, ArcelorMittal will likely have to bear the majority of the costs and squeeze margins in order to come to an agreement and not lose large international customers. Because lobbying for a change in the leniency of policies and definitions will be a lengthy process, it is prudent in the meantime to begin building up production in the US to try to achieve scale and efficiency domestically. Domestically, strengthening relationships with automative and other players downstream in the supply chain should mitigate some of the risk they will bear internationally.

  6. While the benefits in the short-term appear to be positive for ArcelorMittal (AM), I would proceed with caution when setting prices due to negative impacts down the supply chain. Depending on who the major purchasers of steel are I would be concerned with where they have their manufacturing facilities and whether they are considering offshoring their sites in order to access lower cost raw materials and labor. As you pointed out, the auto industry would bear the brunt of these price increases which would then likely be passed on to consumers. These consumers, in turn, could switch to foreign car manufacturers, which ultimately is a net negative for US consumers.

    AM should also be wary of overinvestment in the US as these policies are subject to change depending on the administration. I fully endorse investing in equipment and technology that makes you more competitive; however, if these same gains can be captured in another country with lower investment requirements then I would focus on offshoring. For the executives at AM, I would focus on a balance between offshore and onshore investments.

  7. It’s interesting that a British firm like ArcelorMittal would see protectionism as potentially favorable for its US subsidiaries. The nature of a global supply chain for something like steel is that multinational corporations will have domestic operations in many countries, especially the US; while Arcelor may employ US citizens, I am not sure a company whose beneficial owner is a foreign entity will escape Trump’s populist wrath. Protecting the American operations of a British firm doesn’t seem to pass the smell test for the goal of “Made in America”, and I would be concerned if I were ArcelorMittal that the sweep of the investigation is over-broad. For example, it is conceivably a matter of national defense to prevent foreign-owned companies from having access to domestic supply chains for certain critical industrial goods which underpin American infrastructure. In an extreme case, a populist could certainly argue that using “foreign-designed” steel in a bridge, even if produced in America, is a security threat.

    I would also restrain my optimism if I were ArcelorMittal because the auto industries you mention as being opposed to protectionism have some of the highest iconic value in the American psyche. The renewed decline of Ford and GM would cast a long shadow over any notion of Trump having achieved a victory with protectionist policies.

  8. Thanks for you post DC. It made me curious about Chinese steel manufacturing. With so much news about dumping of steel and it’s affect on global steel prices I wanted to understand their strategy. Reading a couple articles about this led me to the following conclusions.

    In the Forbes article May 31, 2017, there are reports of a huge oversupply of Chinese steel [1]. Foreign countries in Europe and the United States have protected themselves with anti-dumping duties, forcing the Chinese government to create stimulus packages with domestic infrastructure projects to create demand. Unfortunately, the expected steel demand from these projects aren’t as high as expected leading to an oversupply and fears of falling steel prices in China.

    Fast forward a couple months to August 10, 2017 with this CNBC article covering how prices in China are somehow rising [2]. It turns out that due to fears of steel oversupply along with pollution issues, the Chinese government drastically cut back on steel production causing steel prices to spike in fear of a shortage.

    After reading these articles it seems to me that, because the Chinese government has so much control over steel production, they are losing the market forces that cause independent businesses to match supply and demand. They artificially inflate steel production by subsidizing the true costs then overreact causing swings in prices and this leads to consequences around the world.

    [1] Forbes, “Chinese Steel Production Continues To Rise Amid Faltering Demand Conditions”, published May 31, 2017,, accessed November 2017.

    [2] Sophia Yan, “China’s steel prices are rising and that’s worrying Beijing”, published August 10, 2017,, accessed November 2017.

  9. It is saddening to see that despite substantial research on the benefits of free trade (and free markets) [1], perverse incentives still dominate the decisions on protectionism worldwide:

    a) corporate leaders who optimize for their own revenue and, as such, welcome higher barriers to entry in their industry and region
    b) as a consequence of “a”, politicians who succumb to lobby and the dangerous populist/nationalist discourse of protectionism

    This misalignment of incentives unfortunately leads us into a prisoner’s dilemma situation. I honestly hope that we take this opportunity as future leaders to reflect on how will we ensure that we will not repeat the same mistakes – our companies and governments have to lead through differentiation and efficiency (competency) and not laws and regulations (force).

    [1] OECD (2010), “Seizing the benefits of trade for employment and growth”. Available at: (Accessed 30 November 2017).

  10. DC, your piece highlights an example of how wide-reaching protectionism based policies can be. ArcelorMittal has operations globally, but their collaborators are also effected by the potential change in policy. I believe this moment is an opportunity for ArcelorMittal to create strategic alliances with both their customers and supplier, as well as potentially finding nonprofits that can rally around the same cause, creating a strong resistance against the isolationism driven policies. An isolationism based policy change would negatively impact all players that have a stake in global economic success. Joining forces will allow their cause to have a wider reach as well as bring about increased funding.

    I was concerned when you mentioned ArcelorMittal’s first response was to petition in favor of the trade restrictions and increasing domestic investments. I believe this is a short-term view and may provide a window for their more globally conscious competitors to swoop in and take advantage of the opportunity, creating alliances today that may lead to strategic partnerships tomorrow.

  11. Given the relative “wide-openness” of the “Made in America” interpretation, shouldn’t this company make strides in advance of regulation to help form regulation in the way they see fit. Int he relative fallout of NAFTA, companies found opportunities to step ahead of policies to best protect themselves.

    According to the Bureau of Labor Statistics proved that American jobs dropped precipitously as a result of agreements like NAFTA and CAFTA. The company should step ahead of this by generating its own data and rules for maintaining a strong american preference with Trump or without Trump’s regulations.

  12. This is a great post highlighting how ArcelorMittal needs to adapt to protectionist policies in the US. In my opinion, in this political environment, Arcelor should also pivot and expand its footprint in developing markets. It can be hard for multinational companies to move to emerging markets (that may have lower margins and higher volatility) when they have more profitable markets like in the US. However, policies like this help the company management make the case to their Board that Arcelor should invest more in emerging markets. In the long run, this may pay off, as new construction and real estate development (which demands lots of steel) is happening at a much faster rate in the developing world.

  13. DC – How would your analysis change if you believed the protectionist trend was going to be short-lived? Given the volatility in the US political framework and potentially damaging impact of making abrupt changes to operations strategy, I would encourage ArcelorMittal to take a wait and see approach to addressing international trade barriers. Especially given the capital-intensive nature of manufacturing businesses, I think the risk of overreacting is too great.

  14. Really interesting post. I think a really important takeaway is the “unintended” consequences of tariffs. In this case, as you noted, the company sources some of its raw materials outside of the U.S., so while its manufacturing operations would likely benefit from a tariff, a tariff could also drive up costs or disrupt other operations. And in general, tariffs have ramifications throughout society that many people tend to forget about. Tariffs on a certain product can affect demand for other products, which can have wide-ranging ramifications on employment, tax revenue in certain geographic areas, housing costs, etc. Important perspective to have when debating trade policies.

  15. Very interesting post, thank you! In my opinion, ArcelorMittal’s response is shortsighted. Admittedly, it makes sense that they are in favor of regulations that will inevitably increase steel prices in the US, which I imagine is a major market. However, the resilience of their business will be built on regulations that can change, and as Ali has mentioned above, might change sooner than we expect.

  16. Very thought-provoking piece. To me, this really helps highlight the complexity around international trade policies, and understanding intent vs. impact. The economy has become so globalized, that enacting protectionist policies aimed at helping one industry in a specific nation will almost certainly hurt another domestic industry in that same nation. I believe this is especially true in the United States, given how many countries we trade with and how international our economy is.

    It’s interesting that in many ways, ArcelorMittal’s incentives differ greatly from the U.S. automobile manufacturers. While President Trump has made it clear throughout his campaign and since being elected that he wants to revitalize the steel industry in middle America, I’m sure that he would not intend to do that at the expense of U.S. automakers, especially companies in key Midwest states such as Michigan. I believe we need to proceed cautiously as a nation and make sure all economic policies are well-researched in terms of all the expected outcomes.

  17. DC – as someone who’s only mildly familiar with the steel industry and the impacts protectionism has on it, I found this piece insightful and accessible. One line in your post really drove the blog’s thesis home for me: “ArcelorMittal’s average steel selling prices have increased by ~5% between Q1 and Q2 2017 alone [6]. However, ArcelorMittal should proceed cautiously, being thoughtful of the potential secondary and tertiary consequences of broad regulatory actions.” On the surface, it’s easy to see why a U.S. steel company would approve of Trump’s memorandum to protect the domestic steel industry. However, the answer is not that simple. In a world where many domestic producers have facilities and customers outside the U.S. that may stand to lose from protectionism, protectionism can really be a double-edged sword. I would love to see a follow up blog post that goes into the calculus of how a company determines its stance on protectionism and information on how much money companies like ArcelorMittal are spending trying to influence trade policy. I agree with many of the other comments that AM supporting protectionism may be short sighted. Finally, taking a step back, ironically what’s arguably the most important consideration – the impact of protectionism on the overall U.S. and global economy – will likely be under weighted in a company’s calculus as companies will look at the direct impacts on their business.

  18. Fascinating article, DC — definitely a good reminder to be thinking beyond this HBS bubble! In that vein, I’m intrigued by what the implications for the Chinese steel supply will be. Given that they have an overcapacity of steel production and already produce double the level of the entire EU’s steel consumption, one might anticipate that this would have a significant impact on demand for Chinese steel [1]. However, U.S. Commerce Department stats reveal that China supplied 73,594 tonnes of steel in May 2017, which is just 2.4% of the 3.12 million tonnes imported by the United States in that month [2]. I’m inclined to say that this may be just another instance of the federal government acting symbolically.


  19. DC, great post! Thanks for providing insights and putting the spotlight on this important issue. I believe that ArcelorMittal should actually persuade President Trump to refrain from imposing a trade tariff on steel, as I believe that the ensuing trade war with other countries that would likely follow would ultimately outstrip the potential benefits associated with being able to sell steel in the US at higher prices. Economists agree that a trade war would damage both the American and world economies, and any downturn in the economy would certainly impact the steel industry [1]. Furthermore, historical evidence supports the notion that imposing tariffs on steel will ultimately have an adverse economic impact. George W. Bush imposed tariffs of up to 30% on steel imports into the US in 2002, which caused steel prices to spike, but also resulted in approximately 200,000 people losing their jobs in manufacturing [1].

    [1] Annie Lowrey, “The Limits of ‘Made in America’ Economics”, The Atlantic, July 20, 2017,, accessed December 2017.

  20. DC,

    As the beginning of your post alluded to, the industries that companies like ArccelorMittal compete in are highly dependent on the political climate. Significant uncertainty can be created based on the swings in political elections. For this reason, I think it is important for the company to strengthen its current relationships with its customers, lock in long term contracts with new customers, and expand into other service offerings in order to have some downside protection to these political risks. It can strengthen its relationships with customers by building on its supply now when it still has strong forecasts on their consumer behavior. It can lock in long term contracts with new customers by utilizing a strong sales team and highlighting its customer promises more effectively (since it is the dominant player, this may be easier to do than for other smaller competitors). And it can diversify its operations by finding ancillary revenue sources from its main steel operations – i.e. how can it maybe put its waste or scrap metal to use more effectively and open a new market for itself?

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