Medium- and heavy-duty vehicles are a backbone of U.S. economic life. Transitioning these vehicles from internal combustion engines (ICE) to low- and no-emission technologies is a critical step for eliminating greenhouse gas and other toxic emissions from the transportation economy. At the same time, this transition could have serious implications for the ICE vehicle manufacturing industry and auto workers—as well as the steel and aluminum industries that contribute so much to vehicle manufacturing—that have long been hammered by outsourcing and offshoring, union-busting, and intensifying international competition.

If done right, the transition to manufacturing clean trucks and buses presents a rare opportunity to reverse these trends and revitalize long-beleaguered industries with expanding investment, creation of good jobs, and broadly rising incomes in the United States. If done wrong, the transition risks exacerbating the current trends that see companies moving production offshore or to U.S. states embracing anti-worker policies, threatening the security of the good jobs that remain.

Our report models potential economic futures for U.S. truck and bus manufacturing supply chains under a variety of policy scenarios through 2032. The results indicate three pillars are necessary to secure good jobs for legacy auto workers and new entrants to the workforce, and to ensure a robust future for truck and bus manufacturing in the United States. To win good jobs manufacturing U.S. trucks and buses, policymakers must:

1. Maintain a strong public commitment to low- and no-emission vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increase the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Condition financial incentives for companies on creating high-quality jobs; institute penalties and clawbacks for companies that fail to meet their commitments to U.S. investments and good jobs; and prohibit participation in these programs for companies that can’t show “clean hands” with the National Labor Relations Board (NLRB), the Internal Revenue Service, and other relevant regulatory bodies.

On all three counts, President Trump is flooring it in the wrong direction. Reversing federal funding for clean vehicle manufacturers and consumers will eliminate the first pillar of a clean vehicle transition that promotes good jobs, stranding more than $145 billion in new U.S. manufacturing investments and accelerating the decline in market share for domestic truck and parts manufacturing.

The demand for clean trucks will still be there. Although Trump has nixed clean vehicle targets for future new sales, 35 other countries—along with U.S. states, cities, and a range of private-sector manufacturers, fleet owners and operators, utility and infrastructure providers, and capital investors—have pledged to reach 100% clean truck and bus sales by 2040. But without a sufficient U.S. manufacturing base and workforce, that new demand will be met by foreign suppliers. Legacy ICE producers will be faced with dwindling market share and deteriorating production economies squeezing profits.

Figure A illustrates the potential harm of repealing the clean vehicle incentives from the Inflation Reduction Act (IRA). Pulling supply- and demand-side supports from the industry would result in nearly half a million fewer clean energy trucks and buses produced domestically through 2032, relative to the baseline scenario. This would cost more than 35,000 job-years (a quantity requiring one person’s work over one year) in truck assembly and parts manufacturing of ICE and clean vehicles and shrink the industry by nearly $16 billion. Conversely, we find that continuing with federal support for clean vehicles and tightening content rules to increase domestic market share would result in an additional 112,000 trucks and buses made in the United States, and an additional 171,000 job-years.

Figure A

Trump’s track record on the other two pillars is similarly unpromising. Although he made trade competition a signature policy campaign of his first term, the situation facing medium- and heavy-duty vehicle manufacturing got worse. Trump renegotiated the North American Free Trade Agreement (NAFTA), but his United States-Mexico-Canada Agreement (USMCA) preserved the fundamental flaws that empower multinational producers to threaten and actually relocate work to lower-wage and more readily exploitable places like Mexico. Trump left gaping loopholes in USMCA’s “Rules of Origin,” allowing foreign content to enter duty-free into U.S. markets without offering the same market-opening to U.S. producers—a loophole ripe for exploitation by heavily subsidized Chinese producers. And when it came to Chinese producers, Trump’s Phase 1 trade deal failed to meaningfully address any U.S. structural economic concerns. Will Trump’s second term be any different? So far, his tariff bluster seems to be aimed more at leveraging tariffs for international bargaining over non-economic issues rather than protecting good jobs from unfair trading practices.

Since USMCA was signed into law, wages for U.S. motor vehicle production workers have fallen more than 7% after inflation. Meanwhile, U.S. imports from Mexico of medium- and heavy-duty trucks increased 500% and imports of motor vehicle parts increased 150%. After growing steadily since July 2009, overall employment in motor vehicles and parts fell in the first Trump administration while also shifting employment to states with lower wages and worker protections. Trump led relentless attacks on workers’ rights during his first administration, and when he had an opportunity to support striking autoworkers in 2023, he criticized them and spoke at a non-union factory. Now, the president is working closely with union-buster and Tesla, Inc. CEO Elon Musk, who could shape Trump’s policies to squeeze his competitors out of the marketplace.

Will Trump realize he is taking the wrong turn for the future of good jobs building trucks in the United States? Workers in truck manufacturing communities and the rest of the world awaiting critical climate solutions like clean vehicles will be holding our breath.

Glossary of acronyms and initialisms

BEV: Battery electric vehicle

CHIPS: CHIPS and Science Act of 2022  

EV: Electric vehicle

FCEV: Full cell electric vehicle 

ICE: Internal combustion engine

IRA: Inflation Reduction Act of 2022

MHDV: Medium- and heavy-duty vehicles, inclusive of Classes 4–8 trucks and buses

NAFTA: North American Free Trade Agreement of 1994

USMCA: United States-Mexico-Canada Agreement of 2020

Medium- and heavy-duty vehicles—big trucks and buses—are a backbone of economic life in the United States. Transitioning these vehicles from internal combustion engines (ICE) to low- and no-emission technologies is a critical step for eliminating greenhouse gas and other toxic emissions from the transportation economy. At the same time, this transition could have serious implications for the ICE vehicle manufacturing industry and auto workers.

The auto manufacturing industry was once a dependable source of good, union jobs capable of sustaining middle-class communities—particularly for workers without a four-year university degree. But these jobs have deteriorated in quantity and quality thanks to decades of corporate outsourcing and union-busting; bad trade policies; rising foreign competition; and short-sighted corporate governance strategies which caused the 2008 automotive industry crisis.1

Combined, these factors created a generation-long drain of jobs from U.S. motor vehicle industries, applying unrelenting downward pressure on the quality of jobs that remained with predictable reverberations to local economies that have borne the brunt of industry restructuring.2 After 2008, average wages in the industry fell sharply while corporate profits, executive compensation, and stock buybacks soared and crowded out investment in the technologies, manufacturing capacity, and workforce development to compete for the clean vehicle future.

Now that future is upon us. If done right, the transition to manufacturing clean trucks and buses presents a rare opportunity to reverse these trends and revitalize long-beleaguered industries to expand investment, create jobs, and raise incomes in the United States. If done wrong, the transition risks exacerbating the current trends that see companies moving production offshore or to U.S. states embracing anti-worker policies, threatening the security of the good jobs that remain.

This report assesses the potential impacts of a transition on employment, output, and labor incomes in clean truck and bus manufacturing supply chains by modeling a range of policy scenarios from 2024–2032 to understand what is required to secure a just transition for legacy auto workers and new entrants to the workforce. Our analysis shows that a just transition, broadly, must target three things:

1. Maintaining a strong public commitment to low and no-emission vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increasing the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Ensuring that newly created jobs are good jobs with program requirements for companies receiving financial incentives to make them good jobs; penalties and clawbacks for companies that fail to meet their commitments; and prohibitions from participating in programs for companies that can’t show “clean hands” with the National Labor Relations Board (NLRB), the Internal Revenue Service, and other relevant regulatory bodies.

The transition toward clean trucks and buses began in earnest under the Biden-Harris administration, with the 2021 Infrastructure Investment and Jobs Act, 2022 Inflation Reduction Act (IRA), and 2022 CHIPS and Science Act making big strides towards the first target. Together, this legislation allocated billions of dollars toward supporting manufacturers to make low- and no-emission heavy-duty vehicles and components, supporting owners of public and private fleets to purchase them, and building charging infrastructure to power them.3 While the Biden-Harris administration sought to attach highroad labor and domestic content standards to the tax incentives, grants, and no-interest loans to promote clean vehicles, these fell by the wayside in legislative horse-trading needed to pass the U.S. Senate.4 As a result, the law provides policymakers little leverage to hold recipients of billions of subsidies accountable, significant shares of which are flowing to companies that do not meet domestic content requirements or are expanding investments in states with anti-worker policies, undercutting goals two and three.

Now, the Trump administration is moving to drastically reorient the federal policy approach to clean vehicles by freezing disbursement of support for clean vehicle manufacturing provided by the Inflation Reduction Act and other legislation.5 This would rob the resources necessary to incentivize rapid development of domestic clean vehicle manufacturing capacity at a time when consumer demand is shifting away from ICE vehicles.6 And although President Trump took some major actions on trade in his first administration, these failed to reverse the long-term decline in motor vehicle manufacturing jobs and communities, or to advance worker rights more broadly:

• Though pledging to fix the North American Free Trade Agreement (NAFTA), Trump’s United States-Mexico-Canada Agreement (USMCA) left in the fundamental flaws that allow multinational corporations to shift production to low-cost, low-standard locations and create loopholes to import foreign content into North American supply chains. Both bolster employers’ credible threats of outsourcing or closing plants to suppress wage demands from workers in U.S. (and Canadian) manufacturing facilities.
• USMCA’s leakage problem—allowing non-USMCA content to count as being “Made in North America” in qualifying for lower tariffs—undercuts U.S. and North American workers by pitting them in competition against non-USMCA producers with lower labor, environmental, and consumer safety standards and without extending reciprocal market access to similar U.S.-based producers. Under USMCA rules, such content can even qualify for U.S. taxpayer subsidies under IRA policies.
• Since USMCA was signed into law, wages for American motor vehicle production workers have fallen more than 7%, after inflation. Meanwhile, U.S. imports from Mexico of medium- and heavy-duty trucks increased 500% and imports of motor vehicle parts increased 150%.
• Overall employment in motor vehicles and parts lost nearly 8,000 jobs in the first Trump administration. And the significant geographic churning of domestic employment toward lower-wage, non-union jobs in Southern U.S. states contributed to the decline in quality of the remaining jobs in the sector.7
• Looking forward, state-supported Chinese electric vehicle (EV) producers are positioning to exploit loopholes Trump left in USMCA that enable them to penetrate North American motor vehicle supply chains at the same preferential tariff rates as North-American-based producers, without having to compete under reciprocal opening in their home market. By routing through Mexico, Chinese producers will be able to circumvent the 60% blanket tariff President Trump proposed.
• Trump appointees to the NLRB led unprecedented attacks on workers’ rights, overturning long-established precedents, and empowering employers over workers at every turn.8
• In 2023, then-candidate Trump voiced criticisms of striking auto workers and avoided their picket lines in favor of speaking to workers at a non-union factory.9
• Trump and Tesla, Inc. CEO Elon Musk, the world’s largest EV-maker and one of just a handful of e-truck makers, are vocally anti-union, which suggests a Musk-influenced vehicles policy will not prioritize job quality.10 Moreover, Musk has not been shy about advocating for policies that will benefit his company and harm his competitors, even though these policies would be net negative for the US vehicles manufacturing sector as a whole.

Our modeling results show that eliminating financial support and domestic production incentives would fail to meet the three criteria for a clean vehicle transition and result in the worst possible outcome for industry workers and their communities. Not only will current producers fail to seize opportunities to develop new clean vehicle business—making U.S. truck consumers increasingly dependent on foreign technology leadership—but they will also face increasing cost pressures and a declining market share for ICE vehicles at the same time, giving an opportunity for new and foreign clean vehicle manufacturers to leapfrog incumbent domestic producers.

The real way to achieve a just transition to manufacturing clean vehicles is to expand the domestic content and market share for medium- and heavy-duty vehicles produced in the United States, while leveraging substantial public investments to raise job quality across the industry. After surveying the landscape for jobs in the U.S. truck and bus manufacturing industries, the report presents and compares analyses of potential economic futures under varying transition policy scenarios. We conclude with an overview of the policies needed to achieve a just transition in U.S. truck manufacturing—and looming over all these will be the deadline for the United States and partners to reauthorize USMCA in 2026, and a potential opportunity to fix some of these problems. 

Summary findings

• U.S. truck and bus producers face intensifying competition from lower-wage countries, subsidized imports, and corporate offshoring. In 2023, the U.S. imported more than 14 times as many trucks and buses (342,000 units) as in 2007—11,100 units more than produced domestically, with nearly 90% of imports from Mexico.11
• Employers continue issuing credible threats to shutdown factories and relocate production in order to suppress wage demands at home, made possible by the rapidly deteriorating trade position under USMCA. Since 2020, major employers in truck supply chains—like Volvo Group’s Mack Trucks, Daimler Trucks, and Stellantis—have made threats to their workers, announced plans to move production offshore, or implemented relocation plans.12
• State-supported Chinese clean vehicle and component producers are positioning to exploit gaping loopholes left in USMCA motor vehicle content rules going forward. Overall, the Chinese foreign direct investment (FDI) foothold in Mexico grew more than 560% since 2016 and imports of core Chinese-made parts to Mexico, like chassis with engines and bodies and cabs, increased by 132 times and 670 times, respectively, since the start of the 2009 business cycle expansion. This loophole is not just open to Chinese producers. And while we have yet to see importation of complete, Chinese-made trucks or buses from Mexico, U.S. policymakers should anticipate such a probabilistic future scenario and take steps to offset the effects of bad trade policies and market-distorting Chinese-government subsidies.
• Eliminating support for clean energy vehicles would undermine domestic manufacturing industries. Revoking the IRA and related policies would kill support for manufacturing clean energy vehicles and components—stranding $145 billion in new investments and costing more than 35,000 job-years (a quantity requiring one person’s work over one year) in truck assembly and parts manufacturing of ICE and clean vehicles. In total, nearly half a million fewer clean energy trucks and buses would be produced domestically through 2032.13 This would also likely mean loss of market share for domestic content components in diesel gasoline-powered trucks and buses because legacy producers not benefitting from the clean vehicle transition will face deteriorating economies of scale in ICE vehicle production.
• For a just transition, clean energy trucks and buses must be built in the U.S. with good union jobs. Relative to current market expectations, building on current policies to better incentivize investments in domestic production and high-quality jobs could yield an additional 172,000 job-years, building at least 477,000 more clean energy trucks and buses at union wages in the United States through 2032.
• Most of these jobs (79%) would not require a college degree, and with union representation, these workers can earn middle-class wages and comprehensive benefits.

• Better wages for manufacturing workers mean better economic outcomes. Contrary to what many companies claim, it is possible to pay workers good, union wages and provide them benefits while transitioning production lines to clean trucks. We find that widespread unionization with policies to onshore truck and bus manufacturing would increase output and wages throughout the domestic supply chain by $85.9 billion and $28.8 billion, respectively. Building more trucks and buses with more workers is good for workers, good for the communities where these high-quality jobs are located, and good for the environment.

Why we wrote this

Medium- and heavy-duty vehicles are a backbone of economic life, transporting the goods, services, and people working in our economy.14 With 23 million vehicles on the road driving 430 billion miles annually, these trucks and buses serve as essential links in the chains that deliver the goods and services to people and businesses, propelling economic activity.15 Motor vehicle manufacturing employment more broadly is a critical driver of overall economic activity in the United States: Each job in the industry supports 10 additional jobs and three times the output throughout the rest of the economy.16 

But the prevalence of big trucks and buses throughout the economy also carries substantial environmental—and, as a result, economic and public health—consequences. In the United States, the transportation sector is the single largest source of greenhouse gas emissions, with trucks and buses accounting for about one-fourth of those emissions, despite being just 6% of the vehicles on the road.17 Beyond global climate effects, localized air pollution from the transportation sector comes with substantial economic costs that go beyond individual health outcomes—costs borne disproportionately by the 120 million people living in low-income communities and communities of color, often in marginalized proximity to concentrated sources of emissions.18 Such chronic and pervasive exposure to toxic emissions carries macroeconomic implications for human capital accumulation and long-term productivity growth.19

Tailpipe emissions from trucks and buses account for one-fourth of total transportation emissions, in turn one-fourth of U.S. emissions from all sources, and have grown 2.2% annually, on average, since 2000.20 And the consequences for our looming climate crisis are driving an unprecedented global transition to electrify transportation—the eventual replacement of fossil fuel-powered vehicles with no-emission vehicles powered by onboard rechargeable batteries or fuel cell systems that convert hydrogen gas to electricity.21 That’s why 36 countries, including the United States, have pledged to reach 100% clean truck and bus sales by 2040, along with subnational entities like California, New York City, and a wide range of manufacturers and suppliers, fleet owners and operators, utility and infrastructure providers, and private capital investors.22

Achieving this transition will require further development of a wide range of technologies. Innovations will be required for producing the different component parts necessary for electrified vehicles, as well as for the development and installation of information technologies and capital equipment needed to manufacture those components at scale. What’s more, success will require equally ambitious and complementary investments to upgrade and expand renewable energy supply chains on which clean vehicle operations will rely—generation, storage, transmission, and distribution to end users. The challenges of clean vehicle industry development are too complex for traditional policy silos and will require policymakers to take a coordinated approach to industrial policy in order to achieve a just transition.

The stakes of failing to achieve a just transition are high given rising competition to control markets for medium- and heavy-duty vehicle manufacturing. Already, Trump’s USMCA continues NAFTA’s drain of jobs and employers’ ability to suppress worker demands with threats of relocation. But the international competitive environment is shifting and poised to disrupt U.S. markets with vehicles produced in USMCA countries but supplied by a rapidly growing overseas network of Chinese parts producers exporting market-distorting subsidized products to the United States. Without additional policy actions, the U.S. risks experiencing another “China shock”-level event, which decimated manufacturing communities across the country, focused on the broader motor vehicle manufacturing industry.23 This will mean loss of jobs and downward pressure on wages and standards in the jobs that remain, leaving U.S. labor markets and transportation supply chains exposed to risks of international disruption.

Achieving a just transition entails a significant public sector role to manage the transition: creating demand for new investments; retooling legacy internal combustion engine production facilities and training the workforce to produce the clean vehicle goods of the future; striking the right balance in foreign trade; and providing financial bridges to small and medium employers who will face less favorable access to capital markets and steeper challenges in navigating the transition. Failing to pursue a robust and comprehensive clean vehicle agenda is likely to leave workers and the industry’s small and medium enterprises in the lurch.

Sharpening international competition for and offshoring of truck and bus manufacturing

Natural barriers to trade due to the size and weight of MHDVs, as well as the importance of proximity to consumers demanding high degrees of customization, have long insulated U.S. truck and bus manufacturing industries from more intense trade competition—although parts producers in the supply chain have certainly not been immune to pressures from outsourcing and offshoring, with subsidized foreign steel and aluminum content taking a heavy toll. But now international competition is sharpening as the world races toward a transition to clean vehicles, and Chinese producers have begun establishing manufacturing footprints for homegrown Chinese firms and hallmark brands around the world.24 Supported by wide-ranging government subsidies and lax labor, environmental, and consumer protection regulations, a growing new presence of Chinese state-supported motor vehicle manufacturing on America’s doorstep portends a critical challenge to U.S. producers.

President Trump made trade competition a signature economic policy of his first term, although outcomes from his agenda largely failed to address these challenges.25 While Trump created an opportunity to renegotiate NAFTA, an agreement that had long plagued U.S. motor vehicle and parts workers, its replacement failed to rebalance trade or to address NAFTA’s fatal flaws that empower multinational producers to threaten and actually relocate work to lower-wage and more readily exploitable places like Mexico. Rules designed to promote North American production set too low a threshold for determining what counts as North American content to qualify for duty-free treatment in North American trade were not designed to effectively incentivize use of higher-wage local content in manufacturing vehicles.26

Tariffs Trump imposed in his first term aimed to tackle the challenge of state-supported exports of Chinese technology goods, including many categories of motor vehicle parts. Separate global tariffs on steel and aluminum products bound on Chinese exporters, who have upended global markets with strong state support.27 But the main effect was not to deter imports from Chinese-oriented motor vehicle supply-chains, but to divert their production to third countries subject to more favorable tariff treatment by the United States. A surge of outbound Chinese FDI and exports of manufacturing equipment followed, accompanied by surging U.S. imports of motor vehicle parts from countries where Chinese producers expanded their offshore export platforms, including Mexico, Thailand, India, Indonesia, Malaysia, the Philippines, and Vietnam.28 In Mexico, nearly one-fourth of Chinese FDI in late 2023 flowed to the auto industry.29

Figure A illustrates this rising import competition in trucks and buses in recent years, most notably the sharp growth in imports from Mexico, particularly after USMCA.30 In 2007, prior to the Great Financial Crisis and the 2008 U.S. auto industry crisis, the U.S. imported a mere 24,000 MHDVs (less than 10% of U.S. production) with two-thirds of these imports coming from Canada.31 Following the economic recovery after 2009, increasing truck and bus production in Mexico largely displaced Canadian production to serve an expanding share of the U.S. market. Amid this race to the bottom, truck and bus imports from Mexico grew to nearly 98,000 units by 2019—92% of total truck and bus imports—with imports from Canada amounting to less than 6% of total imports, and those from the rest of the world amounting to less than 3%. In total, imports grew to represent 31% of U.S. MHDV production.

By 2023, the United States imported more than 342,000 trucks and buses—88% from Mexico, or 11,100 more units than were produced domestically. This dramatic shift largely reflects growing outsourcing and migration of traditional U.S. producers to Mexico. This dynamic may be poised to change in coming years as a result of the increasing penetration of Chinese manufacturing foreign direct investment in Mexico seeking sidestep U.S. trade enforcement measures.32 With an early start and heavy subsidization under the 2013 “Made in China 2025” policy, China has become the world’s largest producer of and market for clean energy vehicles, and established supply chain dominance in critical clean vehicle components, particularly in the minerals, anodes, cathodes, and cells that go into storage batteries.33

Figure A

Facing U.S. tariffs on a wide range of manufactured and technology goods and steel and aluminum products, as well as broader trade policy efforts to uphold U.S. steel and aluminum producers, Chinese firms began shifting production chains toward countries with more favorable tariff treatment. From 2018 to 2022, Chinese firms increased their direct investments in Mexico by 126%, and their exports of manufacturing equipment to Mexico increased 134% over their pre-tariff level.34 Chinese outbound investment and export of manufacturing machinery show a similar pattern with countries that have shown surging motor vehicle parts exports to the U.S. in the years following 2018 tariffs: Thailand, India, Vietnam, Malaysia, and Indonesia, among others.35 This is less an example of trade diversion (changing trade partners to the next lowest-cost country) than of production diversion—rerouting production in Chinese supply chains through third countries to gain preferential access to U.S. markets. And the most preferred access comes through USMCA partners Mexico and Canada.

A misguided USMCA panel ruling in December 2022 already undercut stronger “rules of origin”—i.e., measures to ensure that imports receiving the best access to North American markets are made with significant North American-originating (“regional value”) content, by workers earning decent wages—in the renegotiated agreement. This ruling enables substantial non-North American content to enter North American motor vehicle supply chains in vehicles that qualify for duty-free entry to U.S. markets. The more complicated an intermediate part is (i.e., the more it incorporates lower-tier components), the more foreign content can masquerade as being “Made in North America.”

USMCA was negotiated prior to policy and industry commitments to the clean vehicle transition, leaving key components and technologies inadequately addressed in existing USMCA rules of origin. The leakage to non-USMCA content undercuts U.S. and North American workers by pitting them against foreign producers operating without the same commitments to worker, environmental, and consumer safety standards—and without similarly extending reciprocal market access to U.S.-based producers. What’s more, this subterranean content can qualify for clean vehicle tax credits subsidized by U.S. taxpayers under the IRA.

Chinese clean energy vehicle and parts manufacturers are poised to exploit this foothold into USMCA markets. Already, the United States is facing surging motor vehicle parts imports from countries where Chinese producers are expanding investments in manufacturing, but complete Chinese-branded vehicles produced in Mexico are not far behind with potential for severe disruption of established producers.36 And the United States is not the only country facing risks from surging, subsidized Chinese vehicle and part imports. Following a nearly year-long investigation into Chinese electric vehicle subsidies, the European Union levied countervailing tariffs of up to 45.3% on imported Chinese vehicles.37

The case of Chinese company BYD is instructive. From an upstart mobile phone battery company that manufactured its first car in 2005, BYD is now the world’s largest EV manufacturer and the world’s second largest EV battery producer.38 BYD is already a manufacturer of battery electric vehicle (BEV) school buses in Canada and school, coach, and transit buses in the United States. These projects began with promising community engagement and $39 million in taxpayer funds but devolved into recriminations of broken promises over the number and quality of jobs created and community benefits delivered.39 A range of BYD battery electric Class 6 and Class 8 trucks are already available in the U.S. market—more models than any other clean energy vehicle manufacturer is offering.40

BYD’s current dominance in the market for light passenger vehicles should serve as a harbinger of the potential for the company—among others benefitting from direct and indirect Chinese government support—to undercut U.S. and global markets for trucks and buses as well. Analysis released by industry benchmarking firm A2Mac1 shows that BYD markets essentially the same battery electric car (the Dolphin) in both the Chinese and European Union markets, but what retails for around $14,000–$15,000 in China is priced at $33,000–$35,000 in Europe—in line with the lowest priced BEVs in the market.41 Even after accounting for slight modifications to the vehicle to comply with higher European safety standards, taxes, and transportation costs, A2Mac1’s piece-by-piece teardown of the vehicles in the two markets finds that BYD is earning roughly $7,400 in profit on each unit sold in the EU.

These super profits owe to BYD’s unparalleled low costs of production, only made possible by a complex set of complementary Chinese government policies. To be certain, BYD has produced a number of cutting-edge product and process innovations that have made the company a technological leader, but they have done so with the benefit of robust and comprehensive industrial policies providing favorable access to credit and land; tax and regulatory forbearance; investments in critical mineral development and refining; investments in workforce development; demand-side policies providing consumer incentives and charging infrastructure; and suppression of worker rights, health, and safety concerns.

At present, BYD is content to reap these profits rather than upend market structures with price wars that are now squeezing other electric vehicle manufacturers.42 Insulated from the same kind of financial market pressures to return short-term profits to investors faced by peer companies in the United States, BYD can instead expand on their competitive lead by returning those earnings to investment in developing new technologies and markets for their products.43 But the mere realization of such super profits signals to competitors BYD’s ability to wage a decisive price war, which is certain to deter future investments by others or potential new entrants in the market for clean energy vehicles without a change to the market dynamic.

The situation for clean trucks and buses will be no different. Without additional policy actions to ensure development of viable domestic clean vehicle manufacturing, increasing permeation of BYD and other Chinese motor vehicle assembly and parts firms in Mexican manufacturing with potential preferential access to U.S. markets through USMCA is set to sharply disrupt U.S. truck and bus (and light-duty vehicle) manufacturing.

Assessing the jobs and economic impact of battery electric (and fuel cell electric) trucks and buses

Our modeling analysis focuses on how U.S. industry employment and output in truck and bus manufacturing and supply chain industries would be impacted by strengthening or curtailing policies intended to promote onshoring of domestic clean vehicle manufacturing, high-quality union jobs, and financial support for infant clean vehicle industries. We use the IMPLAN input-output model to assess the impacts of a shift from manufacturing diesel trucks and buses to ones with battery electric or fuel cell electric powertrains and a range of policy scenarios over the medium-term outlook from 2024–2032. Input-output models divide the economy into constituent industries and trace the complex interdependencies between them—546 discrete industries in IMPLAN’s case.44

In this report, we limit our consideration to impacts on the truck and bus assembly industry and the business-to-business purchases of inputs required for manufacturing of final vehicles, and so on down the supply chain. This excludes so-called “induced effects” on the macroeconomy created when workers directly engaged in truck and bus supply chains spend their incomes, which can—statistically speaking—suffer from aggregation bias in such analysis.

We take S&P Global Mobility’s Medium- and Heavy-Commercial Vehicle Forecast as the baseline scenario for our analysis against which to measure impacts of potential policy changes.45 S&P Global Mobility surveys market participants and producers; their database covers more than 95% of global MHDV production at the plant and vehicle model level for medium- and heavy-duty trucks and buses (Class 4–8 vehicles), a representation of which is pictured in Table 1.46 In total, S&P Global projects U.S. production of nearly 3.9 million MHDVs from 2024–2032, including nearly 600,000 battery electric vehicles and 115,000 full cell electric vehicles (FCEVs). Under current expectations and market and policy conditions, S&P Global projects that by 2032, 28% of U.S. heavy truck production will be clean vehicles and 42% of medium-duty trucks and buses will be clean energy-powered.47

Table 1

BEVs and FCEVs are too new to receive unique treatment in the IMPLAN model’s array of industries. Therefore, first we must estimate the requisite component inputs for these new manufacturing industries. This goes well beyond just the different powertrains propelling the trucks and buses forward—batteries, motors, and fuel cell systems. E-drive systems in both battery electric vehicles and full cell electric vehicles necessitate redesigning chassis to accommodate battery and electrical systems. Essential functions powered by the burn of a diesel engine like power-steering and power-braking, cabin and cargo HVAC, and thermal management all need to be adapted to high-voltage electrical systems. Upgraded tires are needed to handle additional torque at the wheel from e-drive and regenerative braking. All of this requires using substantially more semiconductors and related content than are found in a clean energy vehicle’s diesel counterpart.

Technological advances in recent years, in tandem with increased investments to meet growing consumer demand for clean vehicles, will bring light-duty BEVs to cost parity with diesel vehicles—even before accounting for current IRA consumer tax incentives—and medium- and heavy-duty clean energy vehicles are not far behind.48 Industry executives regularly claim that BEVs will require 30–40% less labor content than diesel internal combustion engine vehicles.49 Auto executives certainly should have inside information on the production engineering process, but they also have incentives to mislead shareholders (about the potential costs of the transition) and workers (in order to suppress wage demands).

However, independent engineering data do not bear out this reduction in labor content required for clean vehicle production, suggesting that EVs should be expected to embody more labor content than ICE vehicles.50 As a result, it is reasonable and conservative to treat the labor content of ICE and BEV vehicles to be roughly equivalent. Still, such technical engineering analysis leaves open the questions of where and under what conditions those alternative powertrain components will be developed and produced.

Beginning with IMPLAN’s model for ICE heavy-duty vehicle manufacturing, we adjust the contributions of various motor vehicle input industries to substitute costs for components that will replace existing diesel parts. The International Council on Clean Transportation and Ricardo, Plc., a private motor vehicle industry consulting group, provide a teardown analysis identifying cost breakdowns for clean energy components relative to other costs of a complete vehicle, as well as future cost trajectories, as technologies and manufacturing economies of scale improve in the near term.51 Replacing—or, in some cases, supplementing—industry inputs to diesel truck and bus manufacturing with content for low- and no-emission vehicles and scaling overall costs to 100% allow us to create new clean energy vehicle industries that can be modeled within IMPLAN. Thus, we can jointly model the impacts of projected U.S. trucks and buses production for nine discrete groups of vehicles: medium- and heavy-duty trucks and buses produced with diesel, battery electric, and fuel cell electric powertrains.

The baseline S&P Global forecast embodies the current policy environment under Biden-Harris administration policies, as well as market expectations for truck and bus, consumer preferences for drivetrains, and the landscape of international competition within motor vehicle supply chains. We then vary these assumptions in a variety of scenarios to test the impacts of different possible directions for U.S. clean energy vehicle manufacturing policy on employment and output:52

1. 50% clean truck and bus adoption: The U.S. has joined a group of 36 nations pledging 100% of new sales will be clean trucks and buses by 2040.53 Given the rapidly converging cost differences and expected lower total cost of operation for clean energy vehicles, as well as private sector commitments to decarbonize and reduce operational costs, we consider an intermediate scenario where adoption of electrified trucks and buses may outpace S&P Global projections.54 Here, we assume that U.S. output of clean trucks and buses reaches 50% of the total by 2032—with increased production primarily coming from more BEVs—as opposed to the 28% for heavy-duty trucks and 42% for medium-duty trucks and buses currently predicted by S&P.
2. Baseline + increased domestic market share: Unlike the IRA’s Section 30D light-duty clean vehicle tax credits, clean commercial vehicles qualifying for up to $40,000 each under Section 45W do not come with the same requirements for North American assembly or for critical mineral and battery components. To test the potential impact of policies incentivizing increased domestic production of complete trucks and buses and parts, we assume a 10% increase in U.S. production with a doubling of U.S.-originating content in storage battery production.
3. 50% clean trucks and buses + increased domestic market share: This scenario applies the assumption of increased domestic market share in the second scenario with the assumption of more rapid end-user clean vehicle adoption.
4. Scenario 3 + widespread unionization. As discussed above, policies supporting the development of clean energy truck and bus manufacturing industries eschewed requirements that public resources be used to support good jobs. Although political compromise necessary to pass legislation stripped motor vehicle manufacturing workers of labor protections extended to construction work, there are a variety of policy options available that can ensure public resources are being used to support good jobs and not just corporate profits. To test this scenario, we adjust total labor income in the truck and bus manufacturing industry to a union-equivalent rate, based on the current union-wage premium and industry unionization rate, while holding employment constant.
5. Trump’s likely approach: retreat from the clean vehicle transition. Despite the pressures from ballooning greenhouse gases and other toxic emissions from trucks and buses and the rapid expansion of private investment into U.S. clean vehicle manufacturing, not a single Republican official supported IRA legislation. Now, many have pledged to undo public policies supporting this green transition—President Trump, Sen. John Barasso, Sen. Shelly Moore Capito, Rep. Cathy McMorris Rodgers—and at least nine Republican-sponsored bills would repeal or rescind IRA programs.55 In this scenario, we assume the loss of support for investment in domestic manufacturing cuts the domestic content shares of key clean vehicle components by as much as one-half, while loss of demand-side tax credits for MHDV purchases and declining production efficiencies at lower-scale operations cut U.S. clean vehicle production to one-fourth of the S&P Global baseline. Disruption and uncertainty from the policy reversal make consumers less likely to choose low- and no-emission powertrains over diesel trucks and buses, and those opting for clean vehicles are more likely to be supplied by foreign manufacturers or by domestic manufacturers using significantly higher foreign parts.

Results

Figures B–D present visualizations of our topline modeling results for employment, labor income, and economic output impacts, respectively, relative to the S&P Global baseline scenario. When interpreting these results as a whole, it is important to keep in mind that truck manufacturing is an unusually high capital-intensive activity, where a relatively small number of workers can produce large value of output. In Scenario 1, where we assume faster than expected adoption of clean trucks and buses (50% of the market by 2032), employment in truck and bus manufacturing would increase by more than 31,000 job-years while employment in truck and bus supply chain industries would increase by more than 93,000 job-years. Combined, a more rapid expansion of clean truck and bus adoption in the U.S. market would support nearly 125,000 more job-years of work in motor vehicle and parts manufacturing than the status quo. As a group, these workers will earn $11.2 billion over this time. Reaching 50% clean truck and bus adoption by 2032 will mean an additional $61 billion in economic activity in U.S. motor vehicle and parts industries.

Even if the path of clean energy vehicle adoption remains the same through 2032, policies that work to increase the onshore manufacturing and domestic content of U.S. trucks and buses and parts (Scenario 2)—resulting in more domestic manufacturing activity for the same quantity of vehicles—will also improve the situation of workers and businesses in the industry. Increasing market share for U.S. medium- and heavy-duty motor vehicle and parts manufacturing is a boon for workers in the industry, supporting a total of more than 148,000 additional job-years—more than 33,000 in vehicle manufacturing and 115,000 in supply chains, earning an additional $13.3 billion. In total, output in the industry is expected to increase $72 billion by 2032, relative to S&P Global’s baseline scenario.

With an increased clean vehicle share and increased domestic market share separately improving employment and output prospects for truck and bus manufacturing and parts, it should be no surprise that combining the effects (Scenario 3) yields even more positive results. In this scenario, higher demand for clean trucks and buses combined with greater U.S. production capacity translates into more work and more GDP incentivized by green transition policies, supporting more than 171,000 additional job-years, $15 billion in labor income, and $82 billion in industry output.

Ideally, strong labor protection policies would work in concert with supply- and demand-side policies to support good jobs alongside emerging clean vehicle manufacturing industries as they develop. Thus, we model a scenario (4) where widespread unionization raises wages to union levels, strong U.S. content requirements expand domestic market share by 10%, and consumer preferences bring clean trucks and buses to a 50% market share. Here, we assume the same number of workers is employed assembling these vehicles, but that they are paid a union wage. With labor inputs representing only a marginal share of the total cost of a vehicle, it is expected that firms adjust through a combination of lower corporate profits and executive compensation. Given historic profitability and CEO pay, companies have ample space to absorb these costs.56 In certain market dynamics, producers may be able to pass some of this additional cost onto consumers, but the price difference would be imperceptible—less than the cost of purchasing floor mats with a new vehicle.

In this maximal policy scenario, total employment supported in the industry would increase by 172,000 job-years, paying $19.1 billion in labor income, while output would expand by $85.9 billion over the baseline forecast scenario. These results suggest that policies supporting increased domestic manufacturing and unionization yield 28% more labor income for workers over the status quo. What’s more, rather than adversely impacting business with increased labor costs, unionization increases industry output by 4% relative to merely increasing clean energy vehicle quotas and domestic content (Scenario 3).

By now, we can see a pattern emerging: The stronger and more comprehensive the policy support for a clean truck and bus manufacturing, the greater the overall job and economic benefits we should expect for the industry. However, many conservative politicians—including President Trump—are pledging to undo signature legislation supporting a green transition in motor vehicle manufacturing (Scenario 5). Our analysis shows that such a move creates a lose-lose-lose outcome. A policy retreat from greening U.S. truck and bus manufacturing would cull more than 35,000 job-years from the industry (7,200 in vehicles and 28,000 in parts); drive the loss of $3.3 billion in labor income; and shrink industry output by $15.8 billion relative to the baseline scenario, as the United States misses out on newly resurgent motor vehicle manufacturing industries and becomes reliant on foreign technology and manufacturing imports.

Figure E further shows the damage that such a policy move would wreak. Relative to the baseline scenario, 477,000 fewer trucks and buses would be made in America, compared with an additional 112,000 trucks in Scenario 4. The intuition is clear: producing more vehicles with higher shares of U.S.-made content requires more workers (or work hours) who are paid decent wages. The policy retrenchment from clean vehicle transition proposed by President Trump not only moves in the opposite direction, but it runs counter to global trends. Because the rest of the world will be transitioning to clean vehicles, this could effectively shut U.S. producers out of future truck and bus export markets.

Even these figures likely significantly understate the potential economic costs of a clean vehicle policy retrenchment. Job losses predicted by the IMPLAN model only capture the mechanical production relationships between truck and bus manufacturing and their demands on motor vehicle supply chain industries. We should anticipate in practice, given real-world complexities, that economic uncertainty and chaos in the sector following such a policy whiplash will impose more severe job and economic costs.57 In particular, small- and medium-sized suppliers with less favorable access to credit markets than multinational corporations or subsidized foreign producers will find it harder to adapt to shifting targets and could face elimination from the market.

Our results show that, whether battery- or hydrogen fuel cell-driven, electrifying truck and bus manufacturing with high policy standards is a clear winner for workers and the industry overall. However, it is important to highlight that these results do not suggest that all firms and workers will automatically be winners under the transition to electrified trucks and buses. Workers and plants producing legacy ICE vehicles and parts will need retraining and retrofitting to take advantage of new opportunities; smaller businesses with less favorable access to capital than multinational manufacturers will have more difficulty adapting to these changes. Policies must pay careful attention to both ensure that dislocations from churning are managed to avoid creating political resistance to transition policies or to erode the overall benefits promised by the transition.

Figure B

Figure C

Figure D

Figure E

Policy recommendations and conclusion

Federal incentives to build clean vehicles and their components in the United States and to buy domestically manufactured vehicles have spurred a manufacturing renaissance in this country.58 The future of U.S. truck and bus manufacturing industries will be determined by whether policymakers take steps to ensure a just transition toward manufacturing clean vehicles. President Trump’s move to scuttle financial incentives for U.S. clean vehicle manufacturing will likely accelerate the decline in U.S. truck and bus manufacturing employment and job quality, as well as the communities these support.

This outcome is not inevitable, but could result from a series of bad policy choices that would empower companies over workers. Our modeling shows that another path is possible where clean trucks and buses are made with domestically manufactured components (particularly batteries) and when workers are paid union wages, the economic benefits of a clean truck and bus transition can more than offset losses in sunset ICE manufacturing industries. Doing so will require that policymakers build on current policies and other legislation to tackle problems created by past trade policy mistakes and offer policy support to develop the market for clean vehicles from the supply and demand sides.

For the transition to succeed, broadly, the policy approach must:

1. Maintain a strong public commitment to the low- and no-emissions vehicle transition, including supply-side and demand-side measures to overcome endemic market failures in the development and deployment of new clean vehicle technologies.
2. Increase the domestic market share and domestic content share for clean vehicle components in made-in-America trucks and buses by tackling the problems of bad trade policies and strongly tying financial incentives to domestic content requirements.
3. Ensure that newly created jobs are good jobs with program requirements for companies receiving financial incentives to make them good jobs, penalties and clawbacks for companies that fail to meet their commitments, and prohibitions from participating in programs for companies that can’t show “clean hands” with the NLRB.

Domestic manufacturing requirements and incentives ensure that taxpayer support for the industry ends up supporting good jobs and investment to build the clean trucks of the future and their key components at home, rather than just contributing to corporate profits. Labor protections for manufacturing workers ensure that the permanent jobs are desirable, high-quality, and community-sustaining jobs, where workers have the free and fair choice to join a union.

From this perspective, strong supply-side programs are those that require applicant manufacturers to build clean trucks and batteries in the U.S. and source components from other domestic manufacturers. They require applicants to meaningfully engage with organized labor and together build frameworks to negotiate community benefit and workforce agreements, which pave the path to unionization. Strong demand-side programs drive fleet owners to purchase vehicles only from manufacturers that assemble their vehicles in the United States, and source U.S.-made batteries and other components. They require or incentivize the purchase of vehicles made by union workers, or in facilities where workers have the free and fair choice to join a union.

Specifically, policymakers designing incentives to support clean truck manufacturing and deployment should consider adopting the following policies:

Trade policy recommendations

1. Raise the MFN tariff rate on trucks and buses to incentivize companies to invest and operate in compliance with the North American Rules of Origin requirements—rather than simply choosing to pay the current tariff rate—while tightening these rules to cover critical clean vehicle components and to ensure content is truly made in North America.
2. Leverage the USMCA July 1, 2026 sunset to negotiate to raise standards for wages and working conditions across all three countries by tightening Rules of Origin for what qualifies as “Made in North America,” improving USMCA’s labor chapter, strengthening enforcement of the Labor Value Content calculations, more aggressive implementation of USMCA’s Rapid Response Mechanism to expand labor rights in the region, and establishing meaningful wage standards for manufacturing workers.
3. Restrict any goods subject to China Section 301 and Section 232 tariffs from gaining preferential access to U.S. markets under trade agreements or preference programs, including the USMCA and the Generalized System of Preferences (GSP) granting favorable U.S. market access to select low-income and developing economy countries.
4. Restrict any goods produced by an entity based in, supported by, or owned by a nonmarket economy from gaining preferential access under trade agreements or preference programs, including USMCA and GSP.
5. Proceed quickly on the Department of Commerce, Bureau of Industry and Security’s “connected vehicles” notice of proposed rulemaking (2024) to exclude vehicles and sensitive technology and components from countries of concern from operating in the United States.59

Supply-side policy recommendations

1. Utilize program requirements to ensure that applicant manufacturers have made enforceable commitments to card check neutrality, indicating the company’s pledge to voluntarily recognize and bargain a contract with the union once the majority of workers indicate they would like to be represented by that union. Card check neutrality commitments secure workers’ right to organize without illegal intimidation from employers.60
2. Require applicant manufacturers to submit detailed Community Benefits Plans modeled after the Department of Energy’s Battery Manufacturing & Recycling and Battery Materials Processing Grants, wherein employers are asked to submit letters of support from labor unions and required to build plans that advance community and labor engagement, as well as job quality and worker continuity.61
3. Predicate the awarding of government support for applicant manufacturers on a “clean” record with the National Labor Relations Board, which helps to indicate an employer’s observance of, and respect for, existing labor law.
4. Utilize clawback provisions with penalties to hold applicant manufacturers to their labor commitments on an ongoing basis, and beyond authoring the initial Community Benefits Plan.62

Demand-side policy recommendations

1. Require domestic assembly and domestic content requirements to access clean truck deployment incentives, including grants and tax credits.The current policy for commercial clean vehicle tax credits (Section 45W) available to truck and bus consumers requires neither. For all consumer incentives, ensure that only vehicles undergoing final assembly in the U.S. and with domestically manufactured battery cells (including cell components such as anodes, cathodes, and separators) are eligible.
2. Add additional “bonus” incentives for the purchase of vehicle models assembled in facilities where manufacturing workers are protected by a collective bargaining agreement, as certified by a labor union. Add further incentives for the purchase of vehicle models using battery cells made in union manufacturing facilities, as certified by a labor union.
3. Apply Build America, Buy America to school buses as part of the nation’s critical rolling stock—just like public transit buses and mobile port equipment are now.
4. Implement Build America domestic content rules in a manner that distinguishes batteries and non-battery components. Batteries can comprise more than half of the cost of a clean energy vehicle; as written, current content rules are likely to push other non-battery components (currently or with potential for domestic manufacturing) offshore.
5. Expand Transit Infrastructure Vehicle Security Act restrictions to cover all federal assistance applicable to trucks and buses, currently only applied to Federal Transit Administration and Federal Aviation Administration programs.

Smart industrial policy uses a host of tools—like grants, loans, and tax credits—to proactively shape a nascent industry to maximize particular benefits or realize specific outcomes. The recommendations offered above may, where feasible, be applied to existing programs in future rounds of funding or help to guide the creation of new supply- and demand-side programs at all levels of government.

However, it is important to note that manufacturers are free to contribute to a strong, domestic, and union-dense clean truck supply chain without government intervention or coercion. They can choose to be high-road companies, competing on the basis of the quality of their products—rather than on the low costs of their production processes, materials, and labor. That they have historically chosen not to do so is the reason why smart industrial policy is so essential.

Acknowledgements

The authors would like to thank the following people for valuable input on earlier drafts: Candace Archer, Jim Barrett, Josh Bivens, Katherine deCourcy, Anna Fendley, Ted Fertik, Katherine Garcia, Alice Henderson, Basma Hussein, Eddie Iny, Roxanne Johnson, Jori Kandra, Jennifer Kelly, Alison Kirsch, Stevie Marvin, Terin Mayer, Ray Minjares, Eric Ribbentrop, Ellen Robo, Kevin Rudiger, Megan Sarlin, Luke Tonachel, Yihao Xie, and Peter Zalzal.

Appendix

Appendix Figure A

Appendix Figure B

Appendix Figure C

Notes

1. Frank Levy and Peter Temin, “Inequality and Institutions in 20th Century America,” National Bureau of Economic Research Working Paper no. 13106, May 2007.
Henry S. Farber, Daniel Herbst, Ilyana Kuziemko, and Suresh Naidu, “Unions and Inequality over the Twentieth Century: New Evidence from Survey Data,” Quarterly Journal of Economics 136, no. 3 (August): 1325–1385.
Joel Cutcher-Gershenfeld, Dan Brooks, and Martin Mulloy, The Decline and Resurgence of the U.S. Auto Industry, Economic Policy Institute, May 2015.
Lawrence Mishel and Josh Bivens, Identifying the Policy Levers Generating Wage Suppression and Wage Inequality, Economic Policy Institute, May 2021.
Chandra Childers, Rooted in Racism and Economic Exploitation, Economic Policy Institute, October 2023.
Adam S. Hersh, “UAW-Automakers Negotiations Pit Falling Wages Against Skyrocketing CEO Pay,” Working Economics Blog (Economic Policy Institute), September 12, 2023.
U.S. Bureau of Labor Statistics, All Employees, Motor Vehicles and Parts [CES3133600101], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES3133600101, last updated November 1, 2024.

2. The heavy-duty vehicles comprise a unique segment of the industry with its unique challenges, though also sharing some commonalities with the transition in light-duty vehicle manufacturing; for some data, official statistics do not disaggregate between light-duty and heavy-duty industry segments. Where available, we present industry-specific data; elsewhere we rely on higher industry aggregation for motor vehicles and parts manufacturing.

3. The White House, President Biden Announces up to $6.1 Billion Preliminary Agreement with Micron under the CHIPS and Science Act (fact sheet), April 25, 2024.

4. Department of Labor, “Protections for Workers in Construction Under the Bipartisan Infrastructure Law” (web page), accessed May 2024.
Internal Revenue Service, “IRA Prevailing Wage Requirements” (web page), accessed May 2024.
CHIPS for America, Building a Skilled and Diverse Workforce (fact sheet), published February 28, 2023.

5. The White House, Unleashing American Energy (executive order), January 20, 2025.

6. The Economist, “Why Chinese Companies Are Flocking to Mexico,” November 23, 2023.
Meritt Enright, “How China Became the Leading Car Supplier to Mexico and What It Means for the U.S.,” CNBC, August 24, 2024.
Mexico News Daily, “BYD Weighs 3 States for Electric Vehicle Plant,” August 26, 2024.
Elizabeth Machuca, “China’s BYD Plans Expansion Into Mexico, Rules Out U.S.,” Wards Auto, May 24, 2024.
Reuters, “MG Motor to Build Manufacturing Plant, R&D Center in Mexico,” August 8, 2024.
Noi Mahoney, “China-Based Automaker to Invest $3B in Mexico EV Plant,” Freight Waves, April 3, 2023.

7. U.S. Bureau of Labor Statistics, All Employees, Motor Vehicles and Parts [CES3133600101], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/CES3133600101, last updated November 1, 2024.
Chandra Childers, Southern Economic Policies Undermine Job Quality for Auto Workers, Economic Policy Institute, September 4, 2024.

8. Celine McNicholas, Margaret Poydock, and Lynn Rhinehart, Unprecedented: The Trump NLRB’s Attack on Workers’ Rights, Economic Policy Institute, October 16, 2019.

9. Jill Colvin and Tom Krisher, “Trump Goes to Michigan to Rail Against Biden’s Electric Vehicle Push While GOP Rivals Debate,” Associated Press, September 28, 2023.

10. Grant Schwab, “UAW Claims Illegal Labor Threats in X Talk Between Musk and Trump,” The Detroit News, August 13, 2024.

11. Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.

12. AB Volvo, “Volvo Group to Increase North American Heavy Truck Production Capacity,” April 11, 2023.
Rick Holmes, “’Slap in the face’: Union criticizes company’s decision to build some Mack trucks in Mexico,” WFMZ-TV News, April 11, 2024.
Geert De Lombaerde, “Daimler Truck signals production ‘flexibility’ if Trump tariffs require it,” Fleet Owner, November 8, 2024.
Michael Mayland, “Automaker Stellantis has discussed moving pickup truck production from the U.S. to Mexico, union leader says,” CNBC, August 20, 2023.

13. BlueGreen Alliance Foundation, “EV Jobs Hub” (web page), last updated November 2024.

14. Medium- and heavy-duty vehicles encompass Class 4–8 trucks and buses—but not light-duty pick-up trucks like the Ford F-150, Chevrolet Silverado, or Dodge Ram—as well as school, transit, and coach buses; they do not include agricultural machinery or motor homes. Generally, these vehicles have a gross vehicle weight rating (GVWR) above 14,000 pounds and encompass most, but not all, of the list of “Medium- and Heavy-Duty Truck HTS 10-Digit Import Codes,” identified by the U.S. International Trade Administration (2023).

15. Dana Lowell and Jane Culkin, Medium- & Heavy-Duty Vehicles: Market Structure, Environmental Impact, and EV Readiness, Environmental Resources Management, July 2021.

16. Historically, motor vehicle jobs and output multipliers were even higher before so much of the supply chain moved offshore. Industries including wholesale and retail distribution of motor vehicles and parts and maintenance services comprise additional vast industries with broad economic impacts of their own.
IMPLAN (2024). IMPLAN Regions Multiplier Summary.
Josh Bivens, Updated Employment Multipliers for the U.S. Economy, Economic Policy Institute, January 2019.

17. Environmental Protection Agency, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2022, April 2024.
American Lung Association, Delivering Clean Air: Health Benefits of Zero-Emission Trucks and Electricity, October 2022.

18. American Lung Association, State of the Air, April 2023.

19. MHDVs are a major source of nitrogen oxide and particulate matter emissions—smog-forming pollutants that are strongly associated with a wide range of poor health and individual development outcomes, including adverse childhood cognitive and health development; increased incidence of chronic cardiovascular disease; and cancer. And these costs tend to be disproportionately borne by historically disadvantaged groups, often living in marginalized proximity to concentrated sources of emissions. Roughly 72 million people in disproportionately low-income communities and communities of color live in “fenceline” communities near warehouses, ports, railyards, airports, and major freight routes and highway corridors that experience heavy MHDV traffic. Particularly in the case of MHDVs, the American Lung Association (ALA) estimates that a full transition to zero-emission MHDVs by 2050 in just the U.S. counties with the highest levels of MHDV traffic would yield up to $735 billion in public health benefits. More specifically, ALA estimates that a full transition to zero-emission MHDVs by 2050 could avoid more than 8,500 lost workdays, 1.75 million asthma attacks, and 66,800 premature deaths. When including the impact of electrifying light-duty vehicles as well, these numbers increase to 13.4 million lost workdays, 2.78 million asthma attacks, and 110,000 premature deaths.
American Lung Association, Delivering Clean Air: Health Benefits of Zero-Emission Trucks and Electricity, October 2022.
Environmental Protection Agency, “Final Standards to Reduce Greenhouse Gas Emissions from Heavy-Duty Vehicles for Model Year 2027 and Beyond” (regulatory announcement), March 2024.
American Lung Association, Zeroing in on Healthy Air, March 2022.

20. International Energy Agency 50, “Trucks and Buses” (web page), accessed May 2024. 

21. A similar transition is underway in passenger vehicles and light trucks, with much overlap of producers in light-duty and medium- and heavy-duty motor vehicle supply chains.
International Energy Agency 50, “Trucks and Buses” (web page), accessed May 2024.

22. Global Commercial Vehicle, “Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles” (web page), accessed May 2024.

23. EPI analysis of the Current Population Survey Basic monthly microdata, EPI Current Population Survey Extracts, Version 1.0.52 (2024), https://microdata.epi.org.

24. International Energy Agency 50, Global EV Outlook 2023, April 2023.

25. Trade in steel and aluminum products offers some exception. 
Adam S. Hersh and Robert Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert Scott, Aluminum Producing and Consuming Industries Have Thrived Under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021. 

26. Adam S. Hersh, “Testimony prepared for the U.S. International Trade Commission report on the USMCA Automotive Rules of Origin,” October 16, 2024.
Adam S. Hersh, “EPI comments to the Office of the United States Trade Representative on the US-Mexico-Canada Agreement with respect to automotive goods,” January 22, 2024.

27. Adam S. Hersh and Robert Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert Scott, Aluminum Producing and Consuming Industries Have Thrived Under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021. 

28. Adam S. Hersh, “EPI comments to the Office of the United States Trade Representative on the US-Mexico-Canada Agreement with respect to automotive goods,” January 22, 2024.

29. Isabella Cota, “Growth of China’s Automotive Sector in Mexico Worries the US,” EL PAÍS English, November 13, 2023.

30. Adam S. Hersh and Robert E. Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 2021.
Adam S. Hersh and Robert E. Scott, Aluminum Producing and Consuming Industries Have Thrived under U.S. Section 232 Import Measures, Economic Policy Institute, May 2021.
Robert E. Scott, The Manufacturing Footprint and the Importance of U.S. Manufacturing Jobs, Economic Policy Institute, January 2015.

31. Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.

32. These include anti-dumping and countervailing duty enforcements and Section 232 and Section 301 tariffs enacted under U.S. trade law in response to anti-competitive practices in the Chinese economy.
Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report,” January 17, 2024.
Connor Pfeiffer, “Will China Drive Its Electric Cars in From Mexico?” Wall Street Journal, March 5, 2024.
Alliance for American Manufacturing, On a Collision Course: China’s Existential Threat to America’s Auto Industry and Its Route Through Mexico, February 2024.

33. Scott Kennedy, Made in China 2025, Center for Strategic and International Studies, June 1, 2015.
Usha C.V. Haley, Putting the Pedal to the Metal: Subsidies to China’s Auto-Parts Industry from 2001 to 2011, Economic Policy Institute, January 2012.
Agnes Chang and Keith Bradsher, “Can the World Make an Electric Car Battery Without China?” New York Times, May 16, 2023.

34. Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report.” January 17, 2024.

35. Adam Hersh, “Docket Number USTR–2023–0013: 2024 USMCA Autos Report.” January 17, 2024.

36. Reuters, “China’s BYD to Launch First Pick Up Truck at Event in Mexico.” May 7, 2024.
Daniel J. McCosh, “BYD Seagull Lands in Mexico as Dolphin Mini,” Wards Auto, March 1, 2024.

37. Philip Blenkinsop, “EU slaps tariffs on Chinese EVs, risking Beijing backlash,” Reuters, October 30, 2024.
Jorge Valero and Alberto Nardelli, “EU Moves Toward Hitting China with Tariffs on Electric Vehicles,” Bloomberg, March 6, 2024.

38. Heejin Kim, “China’s CATL, BYD Dominate EV Battery Market as Demand Grows,” Bloomberg, October 11, 2023.

39. Mass Transit, “BYD Receives Largest Battery-Electric Bus Order in U.S. History,” November 14, 2019.
Emily Alpert Reyes, “Electric Vehicle Firm BYD Accused of Violating L.A. Wage Rules,” Los Angeles Times, December 1, 2015.
Jobs to Move America, “Protest Denounces Broken Promises by BYD Motors, Inc., Chinese Electric Bus Manufacturer to Taxpayers of LA” (press release), December 1, 2015.
Jennifer Medina, “Chinese Company Falling Short of Goal for California Jobs,” New York Times, October 25, 2013.

40. BYD, BYD Truck Fact Sheet (fact sheet), accessed May 2024.

41. Author’s discussion with A2Mac1 representatives.
Nick Carey and Ben Klayman, “Insight: Why BYD’s EV Exports Sell for Twice the China Price,” Reuters, April 26, 2024.

42. Laura He, “Tesla Cuts Prices in US, China and Germany as Competition Heats Up,” CNN Business, April 22, 2024.
Andrew J. Hawkins, “Ford Slashes Mustang Mach-E Prices Again as EV Price War Enters Its Second Year,” The Verge, February 20, 2024.
Riz Akhtar, “Nissan Slashes Driveaway Price of Electric Leaf to Below $40,000 as EV Price War Deepens,” The Driven, May 9, 2024.

43. Adam Hersh, China’s Path to Financial Reform, Center for American Progress, October 2014.

44. Like all models, input-output models including the IMPLAN model, make necessary simplifying assumptions about the real world we are trying to understand, which condition our interpretation of the results. IMPLAN® model. 2024. Data, using inputs provided by the user and IMPLAN Group LLC, IMPLAN System (data and software), 16905 Northcross Dr., Suite 120, Huntersville, NC 28078 www.IMPLAN.com.

45. S&P Global Mobility, Medium- and Heavy-Commercial Vehicle Forecast, May 2024.
S&P Global Mobility, Medium- and Heavy-Commercial Vehicle Forecast Services Dictionary, September 2023.

46. The historical S&P Global data correspond closely to publicly available industry economic data on MHDV production from the Federal Reserve. We estimate projected output values based on the linear regression of inflation-adjusted manufacturers’ vehicle shipment on truck assemblies.
Board of Governors of the Federal Reserve System (US), Motor Vehicle Assemblies: Heavy and Medium Truck Assemblies [MVAHMTRCKS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MVAHMTRCKS, last updated November 15, 2024.
U.S. Census Bureau, Manufacturers’ Value of Shipments: Heavy Duty Truck Manufacturing [A36CVS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A36CVS, last updated Novemver 4, 2024.

47. For more detail, see Appendix Figures A–D.

48. UBS, “The Electric Vehicle Revolution Is Shifting into Overdrive” (web page), March 3, 2021.
International Council on Clean Transportation, E-Truck Virtual Teardown Study, June 2021.
Ben Sharpe and Hussein Basma, “A Meta-Study of Purchase Costs for Zero-Emission Trucks,” International Council on Clean Transportation Working Paper no. 2022-09, February 2022.

49. Zachary Shahan, “Ford CEO: 40% Less Labor To Build Electric Vehicles,” Clean Technica, November 16, 2022.
Jim Barrett and Josh Bivens, The Stakes for Workers in How Policymakers Manage the Coming Shift to All-Electric Vehicles, Economic Policy Institute, September 2021.

50. Turner Cotterman, Erica R. Fuchs, Kate Whitefoot, and Christophe Combemale, “The Transition to Electrified Vehicles: Evaluating the Labor Demand of Manufacturing Conventional Versus Battery Electric Vehicle Powertrains,” Energy Policy 188, 114064 (June 2022).
Andrew Weng, Omar Y. Ahmed, Gabriel Ehrlich, and Anna Stefanopoulou, “Higher Labor Intensity in US Automotive Assembly Plants After Transitioning to Electric Vehicles,” Nature Communications 15, 8088 (September 2024).

51. International Council on Clean Transportation, E-Truck Virtual Teardown Study, June 2021.
Ben Sharpe and Hussein Basma, “A Meta-Study of Purchase Costs for Zero-Emission Trucks,” International Council on Clean Transportation Working Paper no. 2022-09, February 2022.

52. Given current tight labor market conditions near full employment levels, our results should be interpreted as supporting employment in MHDV manufacturing and parts industries, rather than creating new jobs. This likely would entail job-shifting—drawing workers employed in other industries into motor vehicle manufacturing. On average, these jobs are better paid and yield higher productivity than other jobs, meaning there will be individual and social welfare gains from such job shifting even if there is no net change in total employment.

53. Global Commercial Vehicle, “Global Memorandum of Understanding on Zero-Emission Medium- and Heavy-Duty Vehicles” (web page), accessed May 2024.

54. Hussein Basma, Claire Buysse, Yuanrong Zhou, and Felipe Rodriguez, Total Cost of Ownership of Alternative Powertrain Technologies for Class 8 Long-Haul Trucks in the United States, International Council on Clean Transportation, April 2023.
North American Council for Freight Efficiency, “Medium-Duty Electric Trucks: Cost of Ownership” (web page), accessed May 2024.
Andrew Burnham, David Gohlke, Luke Rush, Thomas Stephens, Yan Zhou, Mark A. Delucchi, Alicia Birky, Chad Hunter, Zhenhong Lin, Shiqi Ou, Fei Xie, Camron Proctor, Steven Wiryadinata, Nawei Liu, and Madhur Boloor, Comprehensive Total Cost of Ownership Quantification for Vehicles with Different Size Classes and Powertrains, Argonne National Laboratory, April 2021.

55. James Temple, “Trump Wants to Unravel Biden’s Landmark Climate Law. Here Is What’s Most at Risk,” MIT Technology Review, February 26, 2024.
Senate Committee on Energy & Natural Resources, “Barrasso, Rodgers Pen Op-Ed: The Biden Climate Legacy: American Weakness,” Republican News, October 19, 2023.
Houston Keene, “One Year Later, Senate Republicans Give Inflation Reduction Act an ‘F’: ‘Reckless Spending Spree’,” Fox News, August 16, 2023.
House Committee on Appropriations, “House Republican Bills Attack and Undermine the Inflation Reduction Act and Bipartisan Infrastructure Law,” n.d.

56. Al Root, “How Much UAW Wage Increases Will Really Raise Car Prices,” Barron’s, October 1, 2023.
Adam S. Hersh, “UAW-Automakers Negotiations Pit Falling Wages Against Skyrocketing CEO Pay,” Working Economics Blog (Economic Policy Institute), September 12, 2023.

57. Disruptions can be expected to plague both the supply- and demand-sides, as consumers will face greater uncertainty in committing to invest in long-lived durable goods with more uncertain prospects for future operational costs.

58. Leo Banks, How Inflation Reduction Act Electric Vehicle Incentives Are Driving a U.S. Manufacturing Renaissance, Center for American Progress, November 2023.

59. Department of Commerce Bureau of Industry and Security, “Securing the Information and Communications Technology and Services Supply Chain: Connected Vehicles,” Docket No. 240227-0060. March 1, 2024.

60. Teamsters Local 492, “What Is Card Check Neutrality?” (web page), October 4, 2017.

61. Community Benefits Plan template, accessible here.

62. Good Jobs First, “Key Reforms: Clawbacks” (web page), accessed May 2024.

Mr. Justin Hoffmann
Deputy Assistant U.S. Trade Representative
for Market Access and Industrial
Competitiveness
Office of the USTR
600 17th Street NW
Washington, DC 20508

Dear Mr. Hoffman and members of the Interagency Committee on Trade in Automotive Goods:

Thank you for the opportunity to submit comment on the operation of the US-Mexico-Canada Agreement with respect to automotive goods. My name is Adam S. Hersh and I am Senior Economist at the Economic Policy Institute (EPI), a Washington, DC, 501(c)3 nonprofit organization created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. This comment represents my own opinions and does not necessarily reflect those of EPI or its board.

Synopsis

The challenge for the U.S. and North American automotive industries remains the same today under USMCA as it did under NAFTA and before: surging automotive imports from low-wage, low-standard producers made possible by a regulatory environment favoring corporations and capital owners over workers and communities, wherever that may be in the global economy.

Today, this central problem is evolving, even since the formulation of USMCA: intensifying import competition for parts, finished vehicles, and, increasingly, automotive IT services (operational software and personal user data) from Chinese and other foreign firms receiving unparalleled state subsidies.

In particular, Chinese-owned and Chinese-affiliated firms have been repositioning their global footprint to launder the origins of their production chains through countries with more favorable tariff treatment in U.S. markets in response to U.S. trade enforcement measures like the 2018 Sections 232 and 301 tariffs and an ever-growing rap sheet of antidumping and countervailing duty actions. This includes Mexico, with a platform into North American automotive (and other manufactures) supply chains, as well as across South and Southeast Asia, from where U.S. automotive imports are also now surging. We have seen the same pattern before in other critical manufacturing industries like steel and aluminum, and other industries with subsidy-driven chronic global surplus capacity.1 

Despite its advances over NAFTA, USMCA is ill-fit to address this challenge to the U.S. and North American automotive industries and to enable them to sustain good jobs given the right policy environment. To be sure, USTR must ensure the robust implementation of USMCA’s terms and that U.S. trade policy is working in lock-step with other organs of the administration – including with macroeconomic policies impacting the competitive value of the U.S. dollar – to achieve U.S. industrial policy goals in transportation equipment and manufacturing more broadly.

Background

NAFTA was a raw deal for working people in the United States, Canada, and Mexico alike. Drafted with little transparency or concern for non-commercial interests – and without the participation of relevant stakeholders – what resulted was not a “free” trade agreement, but a “managed” trade agreement, where trade was managed in the interests of the most influential business lobby groups. NAFTA rewrote the rules for the North American economy, driving Mexican farmers from their land and homes en masse into low-wage, low-standard urban manufacturing life with subsidized U.S. and Canadian agricultural exports and a Wall Street-led Mexican peso crisis in 1995.2

The opportunity to offshore production to Mexico at depressed wages and employment exposed industries and those receiving displaced workers. Initial inflows of investment into Mexican maquiladoras lost favor to Chinese export manufacturing platforms, where wages and standards were lower, once China entered a glide path to WTO membership. But the culmination of these effects on U.S. workers, families, and communities over the decades since NAFTA helped fuel the waves of opioid addiction, suicide, and other deaths of despair now pervasive across the country, as well as a sharp lurch to the right in nationalist political sentiment in the communities most impacted by trade shocks.3

USMCA made some incremental, albeit significant, improvements over the NAFTA, including by strengthening the regional automotive industry and enforcing stronger labor rights broadly across the North American economies. This includes Mexico’s commitment to sustain and monitor the implementation of reforms and the Rapid Response Mechanism, which aims to snuff out labor violations when they arise. But most importantly, USMCA introduced stronger automotive rules of origin (ROOs) that set high regional value content thresholds (RVC), first-ever minimum labor value content rules (LVC), and regional content requirements for steel and aluminum automotive inputs – industries critical to U.S. national and economic security. These gains were painstakingly negotiated to improve upon the original USMCA draft first signed by President Trump in 2018 – and more painstaking work is needed to implement the terms robustly. Still, the USMCA falls far short of what would be needed to make our closest and most important trading relationships truly worker-centered.4

Surging imports imperil U.S. automotive industries

Following trends in other industries, including steel and aluminum products, production chains oriented around Chinese-owned and -affiliated firms are penetrating North American automotive supply chains with rapidly expanding manufacturing platforms in Mexico and a range of foreign countries whose auto parts exports to the U.S. are surging – like Thailand, India, Vietnam, Malaysia, Indonesia, and the Philippines (see Table 1). Combined parts imports from these countries amount to 46% of total U.S. parts imports. It must also be noted that the U.S. State Department repeatedly reports systematic violations of labor and human rights in these countries, including forced and child labor, and that most have not ratified core ILO conventions on forced labor or freedom of association and the right to organize.

The changing pattern of U.S. automotive imports does not reflect trade diversion away from Chinese imports following the 2018 Secs. 232 and 301 tariffs so much as a recalibration of Chinese production chains to evade these and other U.S. trade enforcement measures. China’s ballooning outward direct investment positions since 2018 indicate a rapidly expanding overseas footprint for production chains centered around Chinese-owned and -affiliated firms; its FDI position increased by 126% in Mexico, 40% in Thailand, 246% in India, 119% in Vietnam, 97% in Malaysia, 73% in Indonesia, and 12% in the Philippines. In sum, Chinese direct investment in these countries grew by 79% or more than $42 billion in just four years (Table 1).

Table 1

At the same time, producers of manufacturing machinery and equipment from China to these emerging automotive production hubs also expanded rapidly since 2017: 134% to Mexico, 92% to Thailand, 79% to India, 149% to Vietnam, 159% to Malaysia, 119% to the Philippines, and exponentially to Indonesia (Table 1). Publicly available data does not allow direct and systematic monitoring of foreign automotive industry direct investments, but a spate of media reports on Chinese outward investment in automotive industries corroborate the available international macroeconomic data.5

Problems with USMCA rules of origin

Although some reports suggest that most North American vehicles are expected to meet RVC thresholds, even under USMCA ROOs, substantial non-North American content will creep into North American supply chains and qualify for duty-free entry to U.S. markets.6 The “rolling up” methodology used to calculate regional content shares allow the share of non-North American-originating content to increase exponentially as components are added and transformed through the production chain and to be counted as 100% USMCA-originating. The more complicated an intermediate auto part is – i.e., the more underlying, lower-tier components are required to make an intermediate part – the more foreign content can masquerade as “Made in North America.” Even under USMCA RVC calculations, substantial extra-North American content will enter at 0% duty.

The leakage problem undercuts U.S. and North American workers by pitting them against non-USMCA producers without a commitment to the same worker, environmental, and consumer safety standards and without extending reciprocal market access to similar U.S.-based producers. What’s more, the subterranean content can qualify for U.S. taxpayer subsidies under the 2022 Inflation Reduction Act (IRA) policies – through Section 30D consumer tax credits for content that rolls up into USMCA-conforming content, or through Section 45W commercial tax credits for non-conforming cars through the “lease loophole.” A bigger issue, though, for U.S. automotive industries is that a 2.5% price wedge between USMCA-conforming and non-conforming passenger vehicles and parts is simply not big enough to entice foreign producers benefitting from government support at home to go along with the USMCA rules, or to deter their rapid expansion into Mexican manufacturing platforms in an expanding range of parts, technology components, and finished vehicles.

In contrast, it is clear that import duties and other U.S. trade enforcement measures remain important tools in bolstering U.S. automotive industries amid surging unfair foreign competition. In contrast to rapidly declining U.S. production of passenger cars and SUVs and content covered by 2.5% most-favored nation (MFN) tariffs projected by market analysts like S&P Global Mobility, U.S. production of light duty trucks covered by a 25% MFN tariffs are expected to nearly double over the next decade (and hit President Biden’s zero-emission vehicle target in the U.S. before passenger cars). These trade policy measures must work to complement other facets of U.S. industrial policies targeting investments and high quality jobs in electric vehicles and the green transition made possible by the 2021 Infrastructure Investment and Jobs Act (IIJA) and the IRA.

What’s more, USMCA was negotiated before the U.S. government adopted bold policies to expand electric vehicle (EV) production and utilization. As a result, EV powertrain components received inadequate treatment in the scheduling of core and super-core parts for determining RVC calculations. USTR should address this oversight in the upcoming scheduled review with USMCA partners to ensure that investments in EV technologies and manufacturing capacity made possible by the IIJA and IRA receive the full complementary support of U.S. trade policy.

Recommendations

There is much work to be done to fully implement and maintain, let alone expand upon, automotive trade measures in USMCA. But USMCA will not make or break the U.S. automotive industry or determine whether it can continue supporting the good quality jobs and a domestic manufacturing base that will be needed to tackle our unfolding global climate crisis. Realizing this promise requires U.S. policymaking to operate on all levels towards this common goal. This means that we need policies that create a level playing field for trade against low-standard, government-subsidized competitors alongside policies to invest in the technology and workforce that will keep U.S. producers at the cutting edge, and macroeconomic policies that ensure stable, growing demand for producers.

We cannot meet a challenge that we do not fully understand. That is why I urge the administration to take immediate steps, in partnership with Mexican and Canadian partners and relevant representative stakeholder organizations, to conduct a study of the extent of penetration of subsidized content in North American automotive supply chains. This study should take a census of relevant firms and their beneficial owners, map their positions within automotive supply chains and modes of government support, and identify systems for ongoing monitoring and reporting.

I am encouraged by Treasury Secretary Yellen’s recent MOU to open discussions with Mexico on bringing CFIUS-like reviews to Mexico’s inward direct investment regime.7 Given increasing IT content in vehicles and connectivity to personal user data, such a comprehensive approach to North American supply chains is warranted. But there is much terrain to navigate before such an idea could become operational. In the meantime, the administration should take unilateral actions to evaluate select investments in conjunction with USMCA RCV and LCV content certifications.

1. Adam S. Hersh, Prehearing brief submitted to the U.S. International Trade Commission Investigation No. 332-591, June 7, 2022; Adam S. Hersh and Robert E. Scott, Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures, Economic Policy Institute, March 24, 2021; Adam S. Hersh and Robert E. Scott, Aluminum Producing and Consuming Industries Have Thrived Under U.S. Section 232 Import Measures, Economic Policy Institute, May 25, 2021.

2. See, e.g.: Emmanuel Alvarado, “Poverty and Inequality in Mexico after NAFTA: Challenges, Setbacks and Implications,” Estudios Fronterizos 9, no. 17: 73–105, 2008; Robert Blecker, “The Mexican and U.S. Economies After Twenty Years of NAFTA,” International Journal of Political Economy 43, no. 2: 5–26, 2014; Mark Wesibrot, Lara Merling, Vitor Mello, Stephan Lefebvre, and Joseph Sammut, “Did NAFTA help Mexico? An update after 23 years,” Mexican Law Review11 no.1, 2018; Jeff Faux, Global Class War, New York: Wiley, 2006.

3. Jeff Faux, “NAFTA, Twenty Years After: A Disaster,” Working Economics Blog (EPI), January 3, 2014. Shushanik Hakobyan and John McLaren, “Looking for Local Labor Market Effects of NAFTA,” Review of Economics and Statistics 98, no.4: 728–741, 2016.; Anne Case and Angus Deaton, Deaths of Despair and the Future of Capitalism, Princeton: Princeton University Press, 2020; Jiwon Choi, Ilyana Kuziemko, Ebonya L. Washington, and Gavin Wright, “Local Economic and Political Effects of Trade Deals: Evidence from NAFTA,” National Bureau of Economic Research Working Paper no. 29525, November 2021.

4. In 2017, EPI economists outlined 6 points for NAFTA reforms: Robert E. Scott, Josh Bivens, and Samantha Sanders, Renegotiating NAFTA: What Should the Priorities Be, Economic Policy Institute Policy, December 7, 2017.

5. Bloomberg News, “Chinese EV Makers Pour Money Into Thailand to Secure Foothold in Its ‘Trailblazing’ Car-manufacturing Industry,” South China Morning Post, June 26, 2023; Isabella Cota, “Growth of China’s Automotive Sector in Mexico Worries the US,” El País, November 13, 2023; Max De Haldevang,“Chinese Manufacturers Get Around US Tariffs With Some Help From Mexico,” Bloomberg, September 13, 2023; Peter S. Goodman, “Why Chinese Companies Are Investing Billions in Mexico,” New York Times, February 3, 2023; Ralph Jennings, Beata Mo, Lo Hoi-ying, and Mia Nulimaimaiti,“Shunned by US, China Investors Use Mexico to Keep Grip on North American Market,” South China Morning Post, June 12, 2023; MND Staff, “Chinese Investment in Manufacturing on the Rise in Mexico,” Mexico News Daily, September 16, 2022; MND Staff, “Chinese Auto Parts Company to Invest US $200M in Coahuila plant,” Mexico News Daily, August 21, 2023; Reuters, “China to Set Up Auto Research Institute in Thailand as EVs Gain Traction,” December 8, 2023; Reuters, “Chinese Automaker BYD to Make EVs in Vietnam,” May 8, 2023; Reuters, “Chinese Firms to Invest Nearly $1 Bln in Northern Mexico -State Officials,” October 25, 2023; Reuters, “Indonesia Relaxes Tax Rules on EV Imports to Attract Investment,” December 13, 2023; Reuters, “JSW, China’s SAIC Form New India Venture for Green Mobility,” November 30, 2023; Reuters, “Malaysia PM Says China’s Geely to Invest $10 Bln in Domestic Auto Hub -Report,” July 18, 2023; Reuters, “Philippines Says China’s Yadea to Invest $1 Billion in E-motorcycle Plant,” June 15, 2023; SAIC Motor, “SAIC Motor Expands Its Global Footprint” (press release), May 11, 2023; Tang Shihua, “China’s Tenglong to Build USD20 Million Malaysia Car Parts Plant for Foreign Clients,” YiCai Global, May 15, 2023; Amy Stillman, “Chinese Car Companies Cracked North America by Going to Mexico,” Bloomberg, November 28, 2023; The Economist, “An Influx of Chinese Cars is Terrifying the West,” January 11, 2024.

6. Legacy models that do not will soon be phased out as the industry transitions toward zero-emission vehicles. See: Michael Schultz, Kristin Dziczek, Yen Chen, and Bernard Swiecki, U.S. Consumer & Economic Impacts of U.S. Automotive Trade Policies, Center for Automotive Research, February 2019.

7. U.S. Department of the Treasury, “Secretary of the Treasury Janet L. Yellen and Mexico’s Secretary of Finance and Public Credit Rogelio Ramírez de la O Announce Intent to Establish Bilateral Working Group on Foreign Investment Review” (news release), December 7, 2023.

Industrial supplies (45%) and capital goods (26%) led export growth in 2022, while capital (42%) and consumer goods (30%) and automotive vehicles (20%) led import growth. #trade #data 2/

— Adam S. Hersh (@adamshersh) February 7, 2023

Despite surging fuel prices, US #petroleum imports *fell* in real terms to $325.9b in 2022, or $26b shy of pre-pandemic levels. #trade #data 4/

— Adam S. Hersh (@adamshersh) February 7, 2023

Similarly, the US trade deficit with Canada and Mexico ($212b) and with #IPEF countries ($350b) set new records, widening by 20% over the previous year. #trade #data 6/6

— Adam S. Hersh (@adamshersh) February 7, 2023

Key takeaways:

• Section 232 and 301 tariffs have nothing to do with the current inflationary spike. The tariffs—implemented in 2018—had little effect on U.S. prices, and inflation only spiked after the pandemic recession began in February 2020.
• Eliminating tariffs would not significantly reduce inflation. At best, removing these tariffs would result in a one-time price decrease of 0.2%—a drop in the bucket when consumer prices have risen by more than three times as much, on average, every month since January 2021, driven largely by pandemic-related global supply chain disruptions and the war in Ukraine.
• Removing these tariffs would undermine U.S. steel and aluminum industries and increase domestic dependence on unstable supply chains. Tariff removal would result in job losses, plant closures, cancellations of planned investments, and further destabilize the U.S. manufacturing base at a time of intensifying strategic importance for good jobs, national security, and the race to green industry.

With dwindling options on inflation and a mounting chorus of special interest business lobbies, the Biden-Harris administration is reportedly considering removing some Trump-era tariffs in an effort to moderate rising prices in the U.S. economy.

Tempting as such an action may seem, it is certain to have unnoticeable effects on overall prices—at best. And the action will ensure, moving forward, that our supply chains will be even more vulnerable to the kinds of disruption risks we are seeing play out right now. These tariffs offer a tangible policy response to a real-world economy rife with market failures that invalidate the predictions of canonical economic trade models used to argue against keeping the tariffs.

In the absence of a more comprehensive approach to U.S. industrial strategy, the tariffs are working to resuscitate America’s industrial base and have done so with no meaningful adverse impacts on prices. Pulling the rug from under this rebuild now, without first putting in place other policy solutions to address costly market failures, risks undoing this progress and jeopardizing the financial conditions in industries that are critical to building the infrastructure and renewable energy investments needed to power future economic growth.

Two broad sets of tariffs implemented under U.S. trade law in 2018 are under review by the Biden-Harris administration. The first and biggest group retaliated against findings of intellectual property theft and forced technology transfer in U.S. companies doing business in China, following a United States Trade Representative (USTR) investigation under Sec. 301 authority. This led the Trump administration to negotiate a “Phase One” economic agreement with China.

The second set of tariffs invoked national security concerns under Sec. 232 of the trade act to bolster U.S. steel and aluminum industries, perennially at risk of financial insolvency amid long-running, state policy-driven global supply gluts. Since joining the World Trade Organization in 2001, China’s mushrooming steel investment accounted for nearly 70% of the growth in the world’s steel production capacity—a 423% increase—though the tariffs apply more broadly to cover imports from a range of countries where industrial policies are driving investment on a non-commercial basis, worsening chronic overcapacity in global steel and aluminum markets, among other energy- and carbon-intensive basic industries.

Ever since these tariffs were enacted, business lobbies and orthodox economists have warned that tariffs would devastate the economy. One can debate what alternative policy outcomes were possible or preferable, but it is clear that tariffs didn’t make the sky fall. The data show no material adverse impact on consumers or the broader U.S. economy. Previous EPI analysis has shown that the Section 232 measures on steel and aluminum imports have had no meaningful real-world impact on the prices of the leading metal-consuming products (such as motor vehicles, machinery, construction materials, and more).

The unspectacular effects of these tariffs on prices are plain to see by breaking up the recent experience into three periods. Figure A compares the average inflation rate performance across consumer price and various key industrial goods price measures in the period preceding these tariffs, the nearly two-year period with tariffs in effect prior to the pandemic, and from the pre-pandemic business cycle peak through the latest May 2022 data. Inflation, broadly, decelerated substantially after implementation of the tariffs in the pre-pandemic period. This is true for manufactured goods writ large, as well as for consumer prices overall, measured in the Consumer Price Index (CPI). Tellingly, price increases for steel and aluminum slowed sharply to 0.7-0.8% annually from roughly 10% and 4% annually, respectively—largely attributable to U.S. producers redeploying and reinvesting in domestic production capacity amid improved financial conditions resulting from the tariffs.

Price increases for transportation equipment—the biggest metals-consuming industry, including for cars and trucks and their parts—slowed by more than one-third. In some other leading metal-using industries, prices accelerated modestly, but nothing to affect the overall downward trend in prices, and nothing on the order of doomsday predictions prophesied by tariff opponents. In other words, for two years markets and policymakers adjusted to these measures before the pandemic without a hiccup. Inflation, broadly, only spiked after February 2020; it is simply not plausible to infer that these tariffs had a causal role in pandemic-era inflation.

Figure A

It should not be surprising that these tariffs, though affecting a wide swath of U.S. imports, had little effect on U.S. prices. First, Chinese policymakers responded to the tariffs by depreciating their exchange rate by 15% from February 2018 to late 2019, offsetting much of the price impact by making all Chinese exports to the United States that much cheaper in dollar terms.

Second, the tariff measures themselves are rather porous, allowing significant shares of imports to pass around these duties. The Department of Commerce has granted hundreds of thousands of exclusions to both the Section 301 and Section 232 tariffs where businesses could demonstrate adverse economic impacts from limited alternative domestic sources, and where deemed essential under the COVID-19 public health emergency. More importers bypassed the tariffs by transshipping products through countries with preferable access to U.S. markets, perhaps after performing some trivially minimal transformation to qualify as a different product under U.S. trade rules.

Finally, the tariffs are levied on a much smaller base than is implied by the volume of imports covered: the primary steel and aluminum and intermediate inputs of more processed parts and materials. These make up just a fraction of the overall cost of a final good supplied to consumers. For example, looking at pre-pandemic prices, the steel inputs required to make a new U.S. car amount to just 2% of the sales price, compared with 40% for semiconductors and other electronic components.

This suggests that removing the tariffs now—even ignoring impacts on already strained supply chains—would have a similarly negligible impact on the surging inflation we are now experiencing. Figure B illustrates why: overall tariff and customs duties paid on U.S. imports amount to a trivial share of overall personal consumption expenditures. In the nearly two years following the Sec. 232 and Sec. 301 tariffs, customs duties as a share of consumer expenditures increased from 0.3% to 0.4%, on average, relative to the period preceding tariffs. Even if one were to assume (implausibly) this was due to Sec. 301 and 232 tariffs and no other factors, they amounted to at most a 0.1% increase in prices.

But, of course, there were other economic factors at work and the increased tariff collection did not translate into higher inflation. In fact, Figure B shows that consumer prices decelerated from 2.0% to 1.8%, on average, annualized, after implementation of the tariffs and through the business cycle peak in the first quarter of 2020. Customs duties continued to ratchet up during the pandemic, minimally and mechanically, as people shifted from consuming services—less available in the pandemic—to goods, and imports surged with a stronger U.S. dollar, adding another 0.1% as a share of consumer spending. At best, removing these tariffs would result in a one-time price decrease of 0.2%—a drop in the bucket when you consider consumer prices have risen by more than three times as much, on average, every month since January 2021.

Figure B

This is not to say that the tariffs had no impact—they did, particularly in helping U.S. steel and aluminum producers. The increase in the price of imported metal products makes it possible for U.S. producers to achieve economically viable financial margins and stabilize expectations of market conditions enough to entice reinvestment in new production capacity. Nonetheless, conditions of global chronic glut–especially given expected global growth slowdown from China’s partial economic lockdown, the war in Ukraine, and ongoing pandemic-related supply chain disruptions—continue to threaten U.S. metals industries. This affects the strategic goods they produce and the millions of jobs they support directly and indirectly—and a robust manufacturing base more generally. The tariffs may be a crude instrument, but absent other feasible policy options to address the glaring market failures in global trade, they remain a critical tool to support ongoing industrial rebuilding and to ensure that these essential industries have the necessary resources for technology investments to decarbonize moving forward.

Congress applied different criteria for considering these two sets of tariff measures. The Sec. 232 measures clearly prioritize national security concerns over economic efficiency and consumer welfare; under conditions of chronic global gluts, U.S. steel and aluminum producers have been perennially at the brink of economic viability to the extreme that only one producer in a NATO country is capable of producing military- and aerospace-grade aluminum. The Department of Commerce identifies an 80% capacity utilization rate in steel production as a minimum threshold for long-term financial viability of the industry. In the business cycle prior to the 232 tariffs, U.S. steelmakers reached this level of activity less than 5% of the time; though this has improved to 26% of the time since March 2018. The Sec. 232 measures afforded metals producers the financial breathing space to start rebuilding the industry with expanded investment and job creation.

As for the Sec. 301 tariffs, the Phase One agreement with China has gone largely unfulfilled in terms of the bulk commodity purchases pledged by Chinese policymakers and the promise to continue negotiations on further prying open Chinese markets to U.S. foreign direct investment and intellectual property monopolies. Ironically, however, if Chinese policymakers had lived up to their end of the bargain, the United States would arguably be in a worse position today in regard to inflation and supply-chain vulnerabilities. The kinds of intellectual property protections and free reign for their foreign investment in China that U.S. business interests sought would make it easier for big corporations to move—or merely threaten to relocate—operations to China, and to book profits in offshore tax havens.

People often focus on trade’s tendency to push down prices. But by exporting in bulk U.S. natural gas and agricultural products to China, Phase One would have made these commodities scarcer, and therefore prices paid by American businesses and households for electricity and food would be higher.

It is clear that the United States is in dire need of an economic strategy rethink. Until a more comprehensive policy approach to U.S. industrial development is heeded, policymakers should at least keep in place the parts of policy that are working to promote U.S. industry.

Executive summary

Four years ago, the U.S. primary aluminum industry was hanging on by a thread. Between 2010 and 2017, 18 of 23 domestic aluminum smelters shut down production, eliminating roughly 13,000 good jobs (Scott 2017). By 2016, the U.S. industry was down to three alumina refineries; by 2017, only one remained in operation. In 2017 the Commerce Department launched an investigation under Section 232 of the Trade Expansion Act of 1962 to determine whether aluminum (and steel) imports could pose a national security threat, leading to import restrictions on aluminum products in March 2018 from countries other than Canada and Mexico—initially a 10% tariff, and later import quotas for a selection of countries (Commerce 2018).1

This report demonstrates that U.S. aluminum producers rebounded following implementation of the Section 232 import measures, with negligible impact on consumers of downstream aluminum products. Domestic producers of both primary aluminum and downstream aluminum products have made commitments to create thousands of jobs, invest billions of dollars in aluminum production, and substantially increase domestic production.

Key conclusions of this report include:

• Aluminum is essential for national defense and critical to the orderly operation of the broader economy. Dwindling U.S. production capacity poses a high risk for costly supply disruptions. Currently there is only one operating U.S. smelter capable of producing high-purity aluminum required for military and aerospace applications—and it is the only one in a NATO country.

• Projects, investments, jobs, and capacity are on the rise since the initiation of the Section 232 aluminum tariffs. At least 55 new and expansion projects are in downstream aluminum industries producing extruded (rod and bar, pipe and tube, and extruded shapes) and rolled (sheet and plate) products. These new and expanded facilities will employ nearly 4,500 additional workers, generate $6 billion in new investments, and add nearly 1 million metric tons of annual rolling and extrusion capacity to the downstream domestic aluminum industry.

• U.S. production of primary aluminum has increased. In the two years from the March 2018 implementation of the Section 232 aluminum import measures to the February 2020 pre-COVID-19 economic peak, U.S. production of primary aluminum increased by 37.6% compared with the preceding two-year period. This increase was a result of restarts or production increases at five of the six remaining smelters. Domestic aluminum production reached 1.14 million metric tons at an annualized rate before the COVID-19 economic shock took hold, up from 741,000 metric tons in 2017.

• U.S. and Canadian shipments of semi-finished products, industries that are closely intertwined with primary aluminum production, also rebounded. Shipments of all extruded products increased 2.7% (281.2 million pounds), and total sheet and plate shipments increased 7% (1.2 billion pounds) relative to the preceding two-year period.

• Section 232 measures led to an uptick in employment. Since implementing the Section 232 import measures, U.S. employment in primary and downstream aluminum industries increased by 1,200 on net by February 2020, at the start of the COVID-19 crisis. Employment in the industry was buttressed by 5,570 jobs created by restarted and newly expanded primary aluminum production and secondary rolling and extrusion mills.

• There is no evidence of a meaningful adverse effect of Section 232 on industries or consumers. Econometric analysis of the causal relationship between primary aluminum prices and prices of aluminum-consuming end-use goods—including canned beer and other beverages, construction goods, furniture, and motor vehicle bodies—shows the effects are statistically zero to economically trivial. The lack of a meaningful causal relationship indicates Section 232 import measures had no adverse effect on downstream industries or consumers.

• There also is no evidence of a causal relationship between primary aluminum prices and domestic industrial output of semi-finished aluminum products. Price changes in raw aluminum exhibit no causal effect on production of aluminum extrusions or sheeting.

• A booming domestic market offset falling exports for tariff-impacted U.S. whiskey. The U.S. aluminum import policy elicited retaliatory tariffs by the European Union (EU) against U.S. whiskey and bourbon exports. While U.S. whiskey exports to the EU fell, exports to the rest of the world fell more. Waning U.S. whiskey exports to countries not imposing new tariffs indicates that producers diverted production to capitalize on the booming domestic market for “super premium” spirits, which grew 11% in 2019, or faster than any year since 2015.

When the tariffs on aluminum (and steel) imports were imposed, critics claimed that while the tariffs would save thousands of jobs in primary metals industries, hundreds of thousands of jobs would be eliminated in the rest of the economy. These critics referenced a 2018 study by the Trade Partnership, which wildly exaggerated the impacts of the tariffs (Francois and Baughman 2018; Scott 2018a). This report demonstrates that the negative effects claimed in the Trade Partnership study and feared by other critics have yet to be found in the U.S. economy.

In total, the U.S. manufacturing sector added 210,000 new jobs between February 2018, the month before the tariffs took effect, and February 2020, the month before the onset of the COVID-19 economic shock.2 Outside of manufacturing, the economy added more than 4 million new jobs in this same period. Looking more specifically at the industries aluminum producers supply, there remains no evidence that the imposition of tariffs on aluminum have had the kinds of negative employment impacts—in downstream manufacturing or other parts of the economy—that were predicted by critics of those tariffs.

Introduction

In spring 2017, the U.S. aluminum industry was in a precarious position, prompting the U.S. Department of Commerce and the president to initiate a Section 232 National Security Investigation, authorized by the Trade Expansion Act of 1962, into threats posed by aluminum (and steel) imports. The root cause of this threat was, and continues to be, the growth of excess capacity and overproduction in China and other countries where government supports distort global markets and put the survival of U.S. aluminum production at stake.

The risks of a diminished aluminum industry extend far beyond the harm done to U.S. businesses and their workers. Aluminum is an essential input for military uses ranging from armor plating for vehicles and naval vessels, to aircraft and other aerospace applications. Currently, there is only one operating U.S. smelter capable of producing the high-purity aluminum required for defense applications (the other comparable smelters are located in China, Russia, and the United Arab Emirates). Dwindling U.S. aluminum capacity also poses a risk to broader economic security, should defense needs crowd out nondefense uses and disrupt production chains in other sectors essential to economic activity and governance, such as power transmission and transportation systems, manufacturing machinery, and construction.

The global excess capacity crisis began when China directed massive subsidies toward a significant expansion of its aluminum industry. Due to the economics of highly capital-intensive industries that require large economies of scale in production (Hersh and Scott 2021), China’s moves forced other nations to follow suit, taking actions to support their own aluminum production in order to counter the adverse effects of China’s expansion. Chinese primary aluminum production capacity increased more than 1,400% from 2000 to 2017 and is responsible for 83% of the total increase in global aluminum production capacity in this time (CRU 2021).

China’s growth in aluminum production has been fueled both by massive subsidization delivered through concessional financing, tax and environmental regulatory forbearance, and access to key inputs like bauxite ore and electricity at below-market prices (WTO 2017a, 2017b). Additionally, Chinese trade measures restricting the export of primary aluminum and subsidizing semi-finished processed aluminum products with WTO-prohibited export tax rebates are succeeding in capturing a growing global market share of both the primary and secondary aluminum market, as well as advantaging other aluminum-consuming goods produced in China (OECD 2019).

Though the largest offender, China is not alone in delivering subsidies that distort the global aluminum market. As the Chinese capacity mushroomed, primary aluminum producers in other regions, such as India and the Persian Gulf states, also expanded capacity with similar types of government supports. According to the Organisation for Economic Co-operation and Development (OECD), “[g]overnment interventions appear widespread all along the aluminum value chain,” including subsidization valued at between $20 billion and $70 billion during 2013–2017 (OECD 2019). In addition to China, the OECD identified India, Russia, and Middle East producers Bahrain, Oman, Qatar, and Saudi Arabia as providing significant subsidies to support their primary aluminum industries (Figure A). Unsurprisingly, capacity and production expansions have occurred primarily in the subsidizing countries. India’s aluminum production nearly doubled from 2013 to 2017, while its production capacity increased by almost 20%. Over the same period, China’s capacity expanded by 51% and its production increased by 46%; in absolute terms, China’s aluminum capacity and production, as the world’s largest industry, was still 11 times the size of India’s. Amid such heavily subsidized growth, the U.S. aluminum industry bled capacity and production, contracting by 40% and 62%, respectively, from 2013 to 2017.

Figure A

The continued expansion and maintenance of excess capacity both inside and outside of China suppressed global aluminum prices, transmitting injury directly to domestic aluminum producers in the United States. Aluminum is a global commodity, and prices are primarily driven by total global supply and demand and set on the London Metal Exchange (LME), regardless of where the aluminum is produced, sold, or stored. Thus, even if the United States does not experience direct changes in aluminum imports, the U.S. aluminum market effectively imports the adverse price and volume effects of subsidized production and surplus global capacity through changes in LME aluminum prices.

Collapsing prices have decimated U.S. primary aluminum production, capacity, and employment. The LME market price of aluminum fell 39% between 2007 and 2016. In an industry with high fixed costs, most domestic producers were unable to weather this long-term sustained price collapse. Between 2000 and 2017, 18 of 23 domestic smelters shut down, and more than 13,000 good domestic production jobs disappeared (Scott 2017).

On March 8, 2018, President Trump used Section 232 authority to impose a 10% tariff. The positive effects were notable. Following imposition of Section 232 import measures and prior to the global economic shock from the COVID-19 pandemic, domestic production in both the primary aluminum (including both alumina refining and secondary smelting and alloying of aluminum) and downstream aluminum rolling and extruding industries were up. Section 232 measures helped these producers hire workers and expand operations—adding capacity, making large investments, and increasing production, as is shown in this report. Then came the COVID-19 economic shock, which hit the aluminum industry as well. As the world recovers from the pandemic and looks to build back stronger and more resilient—and with growing attention to the need to build and support secure, reliable domestic supply chains—Section 232 measures remain a critical tool to counter surging overcapacity in countries with the worst-polluting producers of this critical commodity.

The resurgence of the U.S. aluminum industry—with minimal apparent knock-on effects in other parts of the economy—belies claims by critics, pundits, and representatives of many firms in downstream industries, who argued that the Section 232 tariffs would have a devastating negative impact on a wide range of domestic industries (Francois and Baughman 2018). For example, according to Bloomberg, Ford Motor Co. “began the year by warning that rising costs for raw materials like steel and aluminum, coupled with unfavorable exchange rates, would add $1.6 billion to its costs this year” (Naughton 2018). Of course, increases in the real value of the dollar, which gained nearly 8% from before the Section 232 measures until the start of the pandemic, raise the cost of everything that domestic automobile manufacturers import from the rest of the world (including finished vehicles and parts), and changes in the cost of metals are a tiny fraction of their overall costs (Scott 2018a). In fact, econometric evidence presented in this report shows that changes in primary aluminum prices have statistically insignificant or economically negligible causal impacts on downstream aluminum-using goods such as canned beverages, construction materials, motor vehicle parts, kitchen utensils, and furniture. Complementary data compiled here demonstrate that Section 232 aluminum measures have had no significant, industry-specific or economywide negative impacts on employment or output in U.S. manufacturing or other domestic industries.

Despite benefiting U.S. aluminum producers and having no discernible impact on aluminum consumers, country exemptions and excessive product-specific exclusions to Section 232 import measures increasingly undermine the efficacy of the policy—particularly for downstream products—significantly curtailing the quantity of aluminum goods covered by the measures and the benefits of these measures for the U.S. industry. That the quantity of aluminum products excluded from import measures far outstrips actual U.S. imports of aluminum products indicates how broken the exclusion process has become (Figure B). For example, the Trump administration granted exclusions for 12,873 MMT of aluminum sheet product imports when, in 2017, U.S. consumers imported a mere 1,102 MMT. The exclusions exempted 1,663 MMT of sheet imports from the European Union, even though U.S. consumers imported only 143 MMT of aluminum sheet goods from the European Union in 2017 (USITC 2021). Continually whittling away at the program with such excessive product exclusion requests destroys downstream demand for U.S. primary aluminum and undermines the effectiveness of the policy. Maintaining the Section 232 aluminum import measures remains critical to stabilizing and expanding U.S. aluminum production.

Figure B

Section 232 tariffs yield positive impact on U.S. aluminum industries

After suffering decades-long declines, U.S. primary aluminum production shot up by 60% immediately after implementation of the Section 232 tariffs in March 2018 through January 2019 (Figure C). Thereafter, primary aluminum production remained stable until the COVID-19 economic shock weighed on demand for durable goods in the spring of 2020. While still far from historical capacity, improving market conditions under the Section 232 policy have led to substantial new investments to reopen or expand U.S. primary aluminum production facilities, as shown in Table 1. Combined, these projects restarted 530,000 metric tons of primary aluminum capacity and brought back 1,095 jobs with new investments of $335 million in upgraded and expanded facilities and other fixed cofsts necessary to start production.

Figure C

Table 1

Critics of the Section 232 aluminum measures warned that tariffs would jeopardize downstream producers of secondary aluminum products—semi-finished extrusion, casting, and rolling operations that further transform raw aluminum for production in myriad aluminum-consuming industries. Table 1 further shows this was not the case. U.S. producers of downstream semi-finished aluminum invested in restarts or expanded capacity at 55 facilities. These projects will create 4,475 new jobs, with a capital investment of $6.0 billion. In total, U.S. primary and secondary aluminum producers have committed $6.4 billion in new investments to restart and expand capacity, adding 5,570 new jobs.

Figures D and E illustrate why U.S. primary and downstream producers are restarting or expanding operations: Demand for aluminum produced in the United States and Canada was growing prior to COVID-19.3 Shipments of aluminum extruded products (Figure D) increased by 281 million pounds (2.7%) following implementation of Section 232 measures and up to February 2020, relative to the same period preceding the measures. Shipments in all segments in this market increased significantly, including rods and bars, up more than 54 million pounds (5.3%); pipes and tubes, up more than 19 million pounds (2.3%); and other extruded shapes, up nearly 208 million pounds (2.4%).

Figure D

Figure E

Figure E shows that shipments also grew strongly in aluminum sheet and plate production as well in the same March 2018 to February 2020 time frame, relative to the equivalent period before Section 232 measures. Total sheet production has increased more than 1.2 billion pounds (7.0%). Non-heat-treatable sheet increased 586.1 million pounds (10.1%) and “other” sheet and plate (including heat-treatable) increased a whopping 1.1 billion pounds (35.1%). The only segment of the industry that declined was aluminum can stock, in which shipments decreased by 6.4%; however, this appears to be the result of increasing import penetration largely due to the excessive aluminum sheet product exclusions discussed above.

Figures D and E report trends on shipments of downstream aluminum products from plants throughout the United States and Canada. More detailed data from the Federal Reserve (2021) on U.S.-only industrial production of aluminum and aluminum products also show the aluminum industry rebounding after implementation of Section 232 measures for aluminum imports. These data provide estimates of real output, based on measures of physical output, or (where output data are not available) total production-worker hours, by industry. Overall, U.S. production in the primary and secondary industries increased by 16.3% through December 2018. In the following year, production waned with relaxation of the Section 232 import measures, but by December 2019 U.S. output still remained more than 6% above the level prior to implementation of Section 232. In contrast, U.S. production of nonferrous metals other than aluminum declined by 2.5% over the same time period, offering a parallel case without the support of Section 232 measures against which to compare effects on the U.S. aluminum industry (Federal Reserve 2021).

Beer industry making bogus claims

The beer industry has cried foul regarding the effect of the Section 232 duties on beer sales, but it’s the industry’s deceptive analysis of basic economic trends in the processed food and beverage industries that smells rotten. The Section 232 duties have had virtually no impact on the beer industry or other canned beverage industries and, as discussed in further detail below, careful statistical analysis shows that the price of aluminum has no discernible causal effect on the price of canned beer and other beverage products. A private consulting study prepared for the beer industry reports that the aluminum used in beverage cans represents only 5.7% of the manufacturers’ cost of beer in cans (John Dunham & Associates 2018).4 In other words, even assuming that a 10% tariff passes entirely through to the costs of cans, that would equal less than 0.6% of beer production costs—immaterial in an industry that spends tens of billions of dollars annually on marketing and sponsorships. Price data compiled by the Bureau of Labor Statistics (BLS 2021d) show that in the two years after Section 232 measures were implemented, canned beer prices increased less than 0.5% annually—far below overall consumer price inflation—while sales maintained a stable, rising trend (Census 2021).

The beer industry’s ongoing strength is reflected in the steady growth of employment overall in breweries, wineries, and distilleries since the end of the Great Recession in 2009. In fact, Figure F shows that employment in the industry more than doubled to 155,300 in February 2018—before the Section 232 aluminum import measures took effect—from 72,700 in June 2009. Following the aluminum import measures, trend growth in breweries, wineries, and distilleries was unbroken, increasing by a further 17%, or 26,500 more jobs. Examining the beer industry claims of harm from the aluminum tariffs in more detail, most of the job losses claimed in the industry’s private consultant report were in downstream distribution sectors, with 91% of the 20,300 jobs lost in “retailing, supplier and induced” segments (John Dunham & Associates 2018). As shown below, there is no evidence of job losses to date in these broader segments of the economy. Much like the aggregate modeling analysis by the Trade Partnership, referenced above, such models bear no relationship to observed impacts of the aluminum tariffs on the domestic economy to date (see our analysis of Francois and Baughman 2018, below). This report concludes with an examination of these broader claims about the impacts of the Section 232 import measures on the U.S. economy.

Figure F

If anything, the beer industry has been a victim of its own continued success during the pandemic. While robust consumption has continued, there was a sudden shift toward consumption of beer and other beverages in cans, displacing demand for beer in glass bottles and stainless steel kegs (Beverage Information Group 2018). A recent Washington Post article makes clear this has little to do with Section 232 import measures, and everything to do with demand for canned beverages far outpacing supply from can manufacturers that can’t scale production capacity fast enough (Reiley 2020).

Aluminum consumers face negligible effects from Section 232 measures

An important concern in assessing the impacts of Section 232 measures on imported aluminum products is how these measures affect downstream industries and consumers of products that use aluminum inputs. Harm to downstream industries would occur if Section 232 measures significantly increased aluminum prices, causing increased costs for producers or consumers of primary aluminum-embodying goods, and then those costs squeezed profit margins or consumer welfare—by forcing consumers to either pay more for or consume less of a given product. To assess this linkage between aluminum input prices and end-user prices, we employ standard, related, and time-tested econometric techniques known as Granger causality analysis and vector autoregression (Granger 1969; Sims 1980).

Vector autoregression (VAR) is a statistical method for modeling a system of variables and their interrelationship and co-evolution over time. Granger causality analysis uses the VAR model to test for evidence of a statistically causal relationship between the variables in the model. If past values of variable 1 are shown to significantly predict current values of variable 2, then it can be concluded that variable 1 “Granger-causes” variable 2. While the price variable used in this modeling (variable 1) includes the effects of Section 232 tariffs and quotas, the results of the statistical test are not limited to the effects of Section 232 measures, but rather evaluate whether a change in prices resulting from any factor causes a change in the price of the aluminum-using good (variable 2). Technical discussion of this methodology and detailed results are presented in the appendix.

In this case, we model (1) the price of primary aluminum products, (2) the price of aluminum-consuming products, and (3) the effective federal funds interest rate.5 Results of the statistical relationships are reported in Appendix Table 1. The end-use products investigated represent the U.S. industries consuming the largest volume of aluminum products as a share of their overall value added, including beverage manufacturing, construction materials, motor vehicle bodies and parts, kitchen utensils, and furniture. First, our results find no discernible statistical relationship between a change in the price of primary aluminum and changes in the prices of canned beer and ale case goods, aluminum cans and can components, or beverage manufacturing. Even though aluminum inputs make up 10% of the value added in beverage manufacturing, according to input-output tables produced by the Bureau of Labor Statistics (BLS 2021b), aluminum prices do not have a causal effect on beverage prices.

Similarly, we find no causal effect of aluminum prices on motor vehicle body manufacturing—where aluminum accounts for 14% of the value chain—nor do we find a causal effect for nonresidential construction goods (6%) or commercial furniture (3%). The econometric results indicate that any change in primary aluminum prices is expected to result in no change in the price of the end-use product. We do find evidence of a causal relationship between primary aluminum prices and motor vehicle parts, as well as for aluminum kitchen utensils. However, while these results are statistically significant, the magnitude of the effect is, in essence, economically negligible. In both cases, a 1% increase in the price of primary aluminum is expected to elicit a less than 0.1% change in the price of the end-use good.

Second, we test whether the price of primary aluminum production has a causal effect on industrial production of secondary aluminum products that transform raw aluminum into intermediate semi-finished aluminum products—the extrusions, castings, sheets, and plates illustrated in Figures B and C above. Evidence of a causal relationship between primary prices and measures of secondary aluminum production would indicate that Section 232 aluminum import measures could be harming downstream segments of the U.S. aluminum industry. However, here too we find no statistically significant relationships (see Appendix Table 1).

Finally, if Section 232 aluminum import measures were skewing primary aluminum prices, we would expect to see effects in the market prices for scrap aluminum products, which would be in higher demand. However, our results definitively indicate no statistically causal relationship between primary prices and the price of aluminum base scrap, or the price of used beverage can scrap.

To recap, economic injury from Section 232 aluminum import measures could be caused if price increases passed through to prices of goods produced in downstream industries, causing other businesses to lose profitability or cut back on production, or for consumers to pay higher prices or curtail purchases. Analysis of the data does not support such conclusions. While conceptually a relationship exists between input prices and final goods prices, econometric analysis of the causal relationship between prices finds effects ranging from statistically zero to essentially nothing.6 In most cases, there is no statistically significant causal relationship between prices or production in the industries downstream from primary aluminum; where there is evidence of a relationship, the effect is so small as to be economically trivial. It is also possible that increasing prices of primary aluminum inputs could induce downstream consumers to increase their productivity, offsetting costs by becoming more efficient. This would be a positive outcome, too, though we have insufficient evidence to draw such a conclusion.

Aluminum tariffs show no impact on broader U.S. employment

The lack of a causal relationship between primary aluminum prices and downstream industries is reflected in the fact that employment outcomes show no indication of the negative effects predicted by Section 232 critics. Table 2 compares two studies (Francois and Baughman 2018; Francois, Baughman, and Anthony 2018) produced for the Trade Partnership, a special interest group, that projected expected employment impacts of the steel and aluminum tariffs against the actual performance of the economy between February 2018 and February 2020—the eve of the COVID-19 economic shock, and equivalent to the time horizon for the 2018 projections.7 The table covers total U.S. employment in 27 detailed and four aggregate industries, and overall nonfarm employment in the domestic economy.8

Table 2

An earlier critique of the first study explained why the actual impacts of the tariffs would be quite minor and why the study should be treated as an outlier in studies of tariffs, not as a guide to policy decision (Scott 2018b). In particular, the study’s modeling exercise deviates from standard assumptions that the economy always adjusts rapidly to maintain full employment via realignment of prices in response to tariffs or other trade measures. These standard assumptions are not grounded in reality, but the alternative assumptions chosen by modelers for the Trade Partnership err in the other direction, presuming hyper labor market inflexibility with the result that the model necessarily predicts massive employment dislocations—also not grounded in reality, particularly in an economy that had grown steadily for the preceding eight years, pushing the unemployment rate well below 4% prior to the COVID-19 shock (Scott 2018a; BLS 2021c). Finally, the macroeconomic effects of tariffs on aggregate demand are ambiguous, not clearly contractionary, as the Trade Partnership report implies.

These two reports are representative of the anti-tariff hysteria that often pervades policy debates. Now, with the benefit of hindsight, history reveals the hyperbole of such claims. The Trade Partnership studies claimed that while the tariffs would save thousands of jobs in primary metals industries, several hundred thousand jobs would be lost in the rest of the economy. In fact, the U.S. economy added nearly 4.3 million jobs on net. A majority of the actual job gains, 3.8 million, came from service-sector industries, although the Trade Partnership studies estimated that a majority of their projected job losses, nearly 377,000, would occur in the service sector. The Trade Partnership projections were no more accurate when it came to manufacturing employment. In the real world, the U.S. economy added 210,000 manufacturing jobs following Section 232 import measures, whereas the Trade Partnership predicted manufacturing would lose nearly 20,000 jobs.

The actual employment results in Table 2 show the extent of anti-tariff hyperbole. The Trade Partnership also vastly overestimated the employment costs to downstream industries reliant on inputs of primary metals. The Trade Partnership predicted job losses in industries like fabricated metals (-12,877) and motor vehicles and parts (-4,917), as well as in sectors of the economy farther afield from metals and manufacturing like personal and recreational services (-35,033); in actuality, these industries added 19,100, 12,100, and 1.78 million respectively. Among other flaws in these predictions, the Trade Partnership did not take account of how appreciation of the international value of the U.S. dollar and extensive exclusions to the Section 232 measures granted to U.S. importers of steel and aluminum eroded the effectiveness of the policy. The employment results presented in this table make two things clear. First, such predictions, though compelling in public debates, were wildly off base. Second, the Section 232 measures worked as intended without harm to other segments of the U.S. economy.

Cry me a whiskey river

In response to the U.S. Section 232 aluminum measures, the European Union imposed retaliatory tariffs on imports of U.S.-made whiskies, bourbon, and rye. While the industry has voiced opposition to the Section 232 measures, there is little evidence that EU retaliation is dampening the party for U.S. whiskey producers. As the Distilled Spirits Council of the United States (2021), an industry lobbying group, put it, “America’s native spirit has been enjoying a resurgence in recent years.” In fact, sales of American whiskey, by volume, grew at an annualized rate of 6.8% from 2017 to 2020, notably faster than the growth of 6% the industry registered in the preceding three years (2014 to 2017).

Figure G shows that, indeed, exports of U.S.-made whiskey, bourbon, and rye fell after June 2018. But exports to the rest of the world—which, unlike the EU, did not impose retaliatory tariffs—fell even more. We can conclude from the common trend seen in disparate export markets in Figure G that this did not result from tariffs, but from some other common factor. It is possible the entire world experienced a shift in preferences away from American whiskey all at the same time. But a more plausible explanation would be that U.S. whiskey producers found more profitable uses in domestic markets for the whiskey they were already producing. Because whiskey improves and increases in value with aging, producers cannot quickly adjust the quantity produced to respond to changing market conditions. They can, however, change the quality of the product to compete in higher-value market segments with higher profit margins, chasing the booming “super premium” market. In 2019, revenues from sales of U.S. super premium whiskeys grew 11% year over year, compared with 6.7% growth in 2018 (Distilled Spirits Council 2021). The COVID-19 pandemic slowed super premium growth as it disrupted global supply chains, but at 8.2% in 2020, sales of U.S. super premium whiskeys still grew faster than in any other year since 2015.

Figure G

Conclusion: Section 232 tariffs have aided aluminum producers

This report has demonstrated that, to date, the aluminum tariffs have had their intended effect: The domestic producers of both primary aluminum and downstream aluminum products have made commitments to create thousands of jobs, invest billions of dollars in aluminum production, and substantially increase domestic production since Section 232 tariffs were imposed on March 8, 2018. The Biden–Harris administration should continue and limit exclusions to Section 232 import measures on an interim basis until it can achieve a permanent, multilateral solution to the chronic problem of excess global aluminum production capacity.

Acknowledgments

The authors thank Jori Kandra for technical and research assistance and Colleen O’Neill for editing assistance. This research was made possible by support from the American Primary Aluminum Association.

About the authors

Adam S. Hersh, PhD, is a Visiting Economist at the Economic Policy Institute. Previously, Hersh was a research associate at the Political Economy Research Institute, University of Massachusetts Amherst; chief economist for the Congressional Joint Economic Committee, Democratic staff; senior economist at the Franklin and Eleanor Roosevelt Institute and the Center for American Progress; a visiting scholar at Columbia University’s Initiative for Policy Dialogue and the Shanghai University of Finance and Economics; and a research fellow at the University College, London’s Institute for Innovation and Public Purpose. He is a contributing author with Joseph Stiglitz of Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity (2015).

Robert E. Scott joined the Economic Policy Institute in 1996 and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade, and manufacturing policies and their impacts on working people in the United States and other countries; the economic impacts of foreign investment; and the macroeconomic effects of trade and capital flows. He has published widely in academic journals and the popular press, including The Journal of Policy Analysis and Management, The International Review of Applied Economics, and The Stanford Law and Policy Review, as well as The Los Angeles Times, Newsday, USA Today, The Baltimore Sun, The Washington Times, and other newspapers. He has also provided economic commentary for a range of electronic media, including NPR, CNN, Bloomberg, and the BBC. Mr. Scott has a PhD in economics from the University of California, Berkeley.

Appendix: Methodology for analyzing causal relationship between aluminum prices and aluminum-consuming industries

This appendix outlines the methodological approach for assessing how Section 232 measures on imported primary aluminum products may affect downstream industries and consumers of products that use aluminum inputs. Harm to downstream industries and consumers could occur if Section 232 measures caused an increase in prices for aluminum products paid by U.S. users of aluminum and those price increases pass through to producer or consumer prices for aluminum-embodying goods. In order to assess this possibility, we evaluate a more basic question: Do changes in the price of primary aluminum cause changes in aluminum-using products? This question asks whether any change in aluminum price is a significant determinant of prices for goods that use aluminum as an intermediate input, irrespective of what factors cause a change in prices.

Data and methodology

To evaluate this question, we estimate reduced form vector autoregressions (VARs) that model the variables of interest as an interrelated system that co-evolves over time (Sims 1980). The VAR is an attractive analytical tool because it does not force an assumed structural form onto the data. Each variable in the system is modeled jointly as a function of its past values and the past values of the other related variables in the system. After estimating the system, we can evaluate causal relationships between the variables by testing whether past values of one variable are statistically significant determinants of the current value of another variable, following Granger (1969).

Our variables of interest are (1) prices for primary aluminum, (2) prices for aluminum-using products, and (3) the effective federal funds rate—the interest rate at which depository institutions borrow and lend reserve balances held at Federal Reserve Banks. This interest rate is the primary target for Federal Reserve monetary policy actions and is linked both in theory and in practice to changes in general price levels, as well as to the level of demand for goods and services across the economy via the Taylor Rule (Taylor 1993). Separately, we also test whether primary aluminum prices and the federal funds rate have a causal relationship with industrial production of secondary, semi-finished aluminum products and aluminum scrap prices.

Data are observed monthly and drawn from the Federal Reserve Bank of St. Louis’s FRED Economic Data, spanning January 2005 to January 2020. Univariate analysis with a modified Dickey-Fuller test (Cheung and Lai 1995) fails to reject the null hypothesis of a unit root for each variable under consideration. While the individual variables are nonstationary (integrated of order one, or first-difference stationary), tests with Johansen’s procedure show that there is no cointegration—or, a stable, long-run relationship—between the variables (Johansen 1995), and the system can be modeled with a VAR, as opposed to a vector error correction model.

The VAR model consists of

where  is the natural log of price at time of primary aluminum, is the natural log of the price of the aluminum-using product, and is the natural log of the effective federal funds interest rate. The model estimates parameters ,  to , and  , which are, respectively, a vector of constant terms, 3 × 3 matrices of coefficients relating the current dependent variable to past values of the independent variables, and a vector of randomly distributed residual with mean zero and uncorrelated across time.

The specific number lags of the dependent and independent variables specified varies for each set of aluminum product and aluminum-consuming goods modeled, and are chosen with some subjectivity, though guided by minimizing a battery of statistical tests, including the likelihood ratio test, the final prediction error, Akaike’s information criterion, Schwarz’s Bayesian information criterion, and the Hannan and Quinn information criterion (Neilsen 2001; Lütkepohl 2005). Results were robust to alternative lag-length specifications. The VAR parameters were estimated simultaneously by the “seemingly unrelated regression” method of Zellner and Theil (1962). Post-estimation, the statistical assumptions were tested to confirm that the VAR parameters are stable (with eigenvalues lying within the unit circle) and that the residual is normally distributed and not serially correlated, indicating that the models are well specified.

The specific parameters estimated that define the structures of VARs are typically of less concern than how the system behaves when there is an exogenous change in one of the variables. In this case, we are concerned whether a change in the price causes a change in , evaluated with a Granger (1969) causality test. This evaluates the hypothesis that the coefficients on are jointly statistically significant in determining against the null hypothesis that the coefficients are all equal to zero. If the test statistic exceeds a critical value at a 95% probability or higher, we can reject the null hypothesis and conclude that Granger-causes . In the event we identify a significant causal relationship, then the system of equations making up each VAR can be used to simulate the effect on of a shock to by simulating an impulse response function.

Appendix Table 1 reports the Wald test statistic χ² and the associated probability for rejecting the null hypothesis of zero causal effect for each pair of prices (or industrial production). For the majority of end-use products considered, we find no statistical evidence that primary aluminum prices affect the price of end-use products (<95% probability). This means that a change in aluminum prices is expected to have zero effect on the price of end-use goods. We do find statistically significant causal effects (>95% probability) of the aluminum price on the prices of motor vehicle parts and stamped and spun aluminum kitchen utensils. For these goods, we estimate the impact of a 1% increase in aluminum input prices using an orthogonalized impulse response function, with results summarized in the final column of Appendix Table 1. For each end-use good, the shock from an initial change in aluminum prices reaches its maximum impact on end-use prices in the following one to three months, then gradually dissipates to zero over the ensuing months, meaning there is no permanent effect on prices.

These were not the only statistically significant causal relationships identified in the VAR modeling. In a majority of the models, Granger analysis finds that the effective federal funds interest rate has a causal effect on aluminum price levels, by moderating aggregate demand, as theory would predict.

Appendix Table 1

Table notes

Table 1, U.S. aluminum restarts/expansions since Section 232 implementation, February 2018–April 2021

The sources for each plant announcement are as follows:

Primary aluminum plants

Alcoa (Warrick, Indiana): Business Facilities, “Alcoa Restarting Indiana Aluminum Smelting Operations,” July 12, 2017.

Century Aluminum Company (Mount Holly, South Carolina): Terri Errico Griffis, “Century Aluminum rebuilds with 3-year power agreement,” Charleston Regional Business Journal, March 3, 2021.

Century Aluminum Company (Sebree, Kentucky): Michelle Fox, “Trump’s tariffs allow us to invest $100 million and hire hundreds: Century Aluminum CEO,” CNBC Online, March 1, 2018.

Magnitude 7 Metals (Marston, Missouri): David Jenkins, “Magnitude 7 Metals CEO praises reinstatement of import tax,” Standard Democrat, August 7, 2020.

Secondary aluminum facilities

Aleris (Lewisport, Kentucky): Lane Report, “Aleris opens $40M aluminum rolling mill expansion in Hancock County,” November 16, 2017.

Alexandria Industries (Alexandria, Minnesota): Dee DePass, “Minnesota aluminum plant breaks ground on $16 million expansion,” Star Tribune, May 14, 2019.

Arconic (Knoxville, Tennessee): Jim Gaines, “Arconic to bring 70 new jobs to Alcoa plant,” Knox News, February 13, 2019.

Arconic (Texarkana, Texas): Junius Stone, “Arconic to add 35 jobs next year,” Texarkana Gazette, August 7, 2018.

Ardagh Metal Beverage (Huron, Ohio): Michael Harrington, “Company to create 200 jobs in Huron,” Sandusky Register, December 10, 2020.

Ardagh Metal Beverage (Winston-Salem, North Carolina): Ardagh Group, “Ardagh Group S.A.—fourth quarter and full year 2020 results,” n.d.

Ardagh Metal Beverage (Olive Branch, Mississippi): Area Development News Desk, “Ardagh Group expands manufacturing at Olive Branch, Mississippi factory,” November 11, 2020.

Ball Corporation (Goodyear, Arizona): City of Goodyear Arizona Economic Development, “Largest capital investment in Goodyear’s history,” July 30, 2018.

Ball Corporation (Pittston, Pennsylvania): Melina Druga, “Ball Corporation to build packing plant in Pittston,” Pennsylvania Business Report, September 4, 2020.

Ball Corporation (Rome, Georgia): Staff reports, “Aluminum packaging manufacturer to expand Rome operation,” Albany Herald,  October 16, 2019.

Benada Aluminum (Sanford, Florida): Bill Zimmerman, “Benada expands Sanford aluminum plant, says tariffs boost demand,” Orlando Sentinel, July 18, 2018.

Bharat Forge Aluminum USA (Sanford, North Carolina): North Carolina Department of Commerce, “Global automotive parts manufacturer selects Lee County for major aluminum forging facility in North Carolina,” September 17, 2019.

Bodine Aluminum (Troy, Missouri): John Raby and Bruce Schreiner, “Toyota investing $750 million at 5 U.S. plants, including its Troy aluminum plant,” St. Louis Post-Dispatch, March 14, 2019.

Bodine Aluminum (Jackson, Tennessee): John Raby and Bruce Schreiner, “Toyota investing $750 million at 5 U.S. plants, including its Troy aluminum plant,” St. Louis Post-Dispatch, March 14, 2019.

Bonnell Aluminum (Niles, Michigan): Business Wire, “Bonnell Aluminum announces start-up of new extrusion line,” June 14, 2017.

BR Metal Products (Livingston, Tennessee): Tennessee Department of Economic & Community Development, “Governor Less, Comissioner Rolfe announce BR Metal Products to expand Livingston operations,” September 21, 2020.

Braidy Industries (Ashland, Kentucky): Morgan Watkins, “Braidy Industries breaks ground on Bevin-backed, $1.5B aluminum mill,” Courier Journal, June 1, 2018.

Central Motor Wheel of America (Paris, Kentucky): Lane Report, “CMWA announces $112M expansion in Paris, Ky.; 145 full-time jobs,” June 27, 2019.

Century Aluminum (Sebree, Kentucky): Global News Wire, “Century Aluminum announces expansion of Sebree casthouse,” November 28, 2018.

Crown Holdings (Henry Count, Virginia): Crown, “Crown holdings to build new beverage can plant in Henry County, Virginia,” January 28, 2021.

Crown Holdings (Bowling Green, Kentucky): Business Facilities, “Crown Holdings begins building $148M plant in Kentucky,” May 15, 2020.

Crown Holdings (Olympia, Washington): Zacks Equity Research, “Here’s why should you retain Crown Holdings at the moment,” NASDAQ September 15, 2020.

Dajcor Aluminum (Perry County, Kentucky): KAM, “Dajcor aluminum to create 265 full-time jobs in eastern Kentucky,” May 13, 2019.

Elixir Extrusions (Douglas-Coffee County, Georgia): Area Development News Desk, “Elixir Extrusions expands Douglas-Coffee County, Georgia, plant,” August 23, 2018.

Ellwood Group (Hubbard, Pennsylvania): Business Journal Daily, “Ellwood Group to build $60M aluminum plant in Hubbard,” September 19, 2018.

Florida Can Manufacturing (Winter Haven, Florida): Kevin Bouffard, “Winter Haven clears way for can manufacturing plant—110 jobs,” December 6, 2019.

Gateway Extrusions (Union, Missouri): The USGlass News Network, “Gateway Extrusions marks expansion and 15th year,” October 10, 2018.

Granco Clark (Belding, Michigan): Brandon Schreur, “‘Misunderstood industry’: Lt. Gov. Brian Calley visits Belding’s Granco Clark in light of expansion,” The Daily News, May 26, 2018.

Gränges (Huntingdon, Tennessee): Brian Taylor, “Gränges to expand aluminum casting capacity in Tennessee,” Recycling Today, March 26, 2021.

Gränges (Huntingdon, Tennessee): Gränges Innovative Aluminum Engineering, “Gränges to invest USD 110 million in US capacity expansion,” September 15, 2017.

Gränges (Newport, Arkansas): George Jared, “Gränges to restart Newport plant, hire 100 new employees,” Talk Business & Politics, May 3, 2018.

Hydro (Schuylkill, Pennsylvania): Stacy Wescoe, “Aluminum manufacturer announces $100M expansion; 60 jobs could be added,” Lehigh Valley Business, September 28, 2018.

Jupiter Aluminum (Brooke County, West Virginia): Connor Griffith, “Jupiter Aluminum announces expansion of Brooke County presence,” West Virginia News, March 27, 2019.

JW Aluminum (Goose Creek, South Carolina): Aluminum Insider, “First phase of JW Aluminum’s US$300MM expansion at SE South Carolina plant nearing completion,” August 28, 2019.

JW Aluminum (Russellville, Arkansas): Global News Wire, “JW Aluminum to invest over $30 million in equipment upgrades for foil production,” September 20, 2018.

Kobelco Aluminum Products & Extrusions (Bowling Green, Kentucky): Team Kentucky, “Newly opened Kobelco Aluminum plant in Bowling Green to grow by $42 million,” December 19, 2018.

Kobelco Aluminum Products & Extrusions (Bowling Green, Kentucky): Don Sergent, “Kobelco Aluminum expanding, adding 90 employees,” Big Daily News, December 19, 2018.

Logan Aluminum (Logan County, Kentucky): Sydny Anderson, “Tri-Arrows Aluminum to invest $125 million in Logan County Facility,” 91.3WKMS Murray State’s NPR Station, May 25, 2017.

Magnode (Butler County, Ohio): Eric Schwartzberg, “It’s already been a big month for this 70-year-old Butler County company, and a $13M expansion is coming,” Journal-News, January 24, 2018.

Matalco (Franklin, Kentucky): Brian Taylor, “Matalco to add Kentucky location,” Recycling Today, March 22, 2021.

Matalco (Wisconsin Rapids, Wisconsin): Caitlin Shuda, “Aluminum manufacturer Matalco to build plant in Wisconsin Rapids, hire 80 full-timers,” Wisconsin Rapids Daily Tribune, January 30, 2019.

Matalco (Various): Matalco, “Matalco Inc announces multiple Greenfield aluminum plants for production in Q-3, 2019,” March 6, 2018.

Mid-States Aluminum (Fond du Lac, Wisconsin): Mid-States Aluminum Corp., “Mid-States Aluminum invests in new press line and expands facility,” December 6, 2017.

Nippon Light Metal Georgia (Adairsville, Georgia): Georgia Office of the Governor, “Nippon Light Metal Georgia to build facility, create 110 jobs in Bartow Co.,” November 21, 2019.

Northern Indian Anodize (Fort Wayne, Indiana): 96.3 XKE Fort Wayne’s Classic Rock, “Startup aluminum company will create up to 48 new jobs,” June 20, 2018.

Novelis (Guthrie, Kentucky): Novelis, “Guthrie, Kentucky,” n.d.

Novelis (Greensboro, Georgia): PR Newswire, “Novelis invest $36 million to expand, upgrade aluminum recycling capabilities in Greensboro, Ga.,” October 30, 2019.

Owl’s Head Alloys (Bowling Green, Kentucky): Nicole Burton and Jack Mazurak, “Owl’s Head, aluminum recycler, expanding in Bowling Green,” Columbia Magazine, February 22, 2018.

Pennex Aluminum (Columbiana County, Ohio): Tom Giambroni, “Pennex Aluminum moves ahead with expansion,” Morning Journal News, September 30, 2019.

Service Center Metals (Prince George County, Virginia): John Reid Blackwell, “Prince George-based Service Center Metals plans $45 million expansion, creating 58 jobs,” Richmond Times-Dispatch, January 11, 2018.

Sundaram-Clayton Limited (Dorchester County, South Carolina): Business Facilities, “Sundaram-Clayton Limited investing $40M in South Carolina expansion,” November 29, 2018.

Superior Extrusion (Gwinn, Michigan): Lisa Bowers, “U.P. company solidies expansion plans with $10.5 million investment,” The Mining Journal, September 28, 2017.

Texarkana Aluminum (Texarkana, Texas): Rob Sitterley, “Texarkana Aluminum highlights record facility investment,” ARTX Regional Economic Development Inc. (REDI), October 17, 2019.

Western Extrusion (Carrollton, Texas): Light Metal Age, “Western Extrusions order complete billet casthouse,” August 22, 2019.

Western Extrusion (Carrollton, Texas): Western Extrusion, “Western Extrusion announces expansion to include new 5,100 ton 14-inch press,” January 24, 2018.

Endnotes

1. Section 232 provisions allow for the imposition of tariffs if the Commerce Department finds that imports are threatening America’s industrial base. See Commerce 2018.

2. Employment effects data in this report measure February 2018 through February 2020, except as otherwise noted.

3. Data are reported jointly for U.S. and Canadian shipments of semi-finished aluminum products, due to the closely integrated nature of the North American industry; however, U.S. production of semi-finished goods far outstrips Canadian production, and market shares have remained in stable proportion in recent years. See USITC 2017, Tables 2.4–2.7.

4. In fact, the consultant’s finding of 5.7% aluminum content in the canned beer industry is lower than the 10% content reported in official U.S. industry input-output analysis data. Still, we find zero statistical evidence of a causal relationship in assessing whether aluminum prices lead to price increases in canned beer and other products.

5. The Federal Funds Rate—the interest rate at which depository institutions borrow and lend federal balances held at Federal Reserve Banks—is the primary target for Federal Reserve monetary policy actions, and is linked both in theory and in practice to changes in price levels, as well as to the level of demand for goods and services across the economy.

6. In fact, the market for secondary semi-finished aluminum products—extrusions and sheet that will be consumed as inputs to further downstream manufactured products—are typically produced at a “conversion price,” a fixed rate above the market price for aluminum combining the global London Metal Exchange (LME) price and the U.S. Midwest premium. Although increases in primary aluminum pass through to semi-finished products mechanically due to this market structure, the evidence presented here shows negligible effects on downstream consumers of these intermediate aluminum products.

7. The Trade Partnership produced two studies of the effects of the steel and aluminum tariffs. The first, published in March, covered the tariffs only, and the second, published in June, considered the possible impacts of retaliation on U.S. employment, by industry.

8. Estimates of agricultural employment are available only on an annual basis. No comparative data are available yet for trends in farm employment. Employment data for some sectors (NAICS four-digit and lower) is available only through September 2018, as shown in Table 2.

References

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Aluminum Association. 2021b. “U.S. and Canadian Producer Shipments of Aluminum Sheet and Plate.” [Excel file] Accessed April 4, 2021.

Beverage Information Group. 2018. “Beer Volume Declines Continue, Despite Gains in Craft and Imported Brews” (press release). October 10, 2018.

Bureau of Industry and Security (BIS). 2021. “232 Exclusions Portal: Published Exclusion Requests.” Accessed May 1, 2021.

Bureau of Labor Statistics (BLS). 2021a. Employment, Hours, and Earnings from the Current Employment Statistics Survey (National). Accessed April 4, 2021.

Bureau of Labor Statistics (BLS). 2021b. “Inter-Industry Relationships (Input-Output Data for the U.S. Economy for the Historical Years 1997–2019, and for the Projected Year 2029 Matrix)” [zipped Excel file]. Accessed April 4, 2021.

Bureau of Labor Statistics (BLS). 2021c. Labor Force Statistics from the Current Population Survey. Accessed April 4, 2021.

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Commerce Department (Commerce). 2018. “Secretary Ross Releases Steel and Aluminum 232 Reports in Coordination with White House” (press release).” February 16, 2018.

CRU Group (CRU). 2021. “Primary Aluminium Production by Region, by Country and by Smelter.” Accessed April 4.

Distilled Spirits Council of the United States. 2021. “On America’s Whiskey Trail.” February 2021.

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Francois, Joseph, Laura M. Baughman, and Daniel Anthony. 2018. ‘Trade Discussion’ or ‘Trade War’? The Estimated Impacts of Tariffs on Steel and Aluminum. Trade Partnership. June 2018.

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Hersh, Adam, and Robert Scott. 2021. Why Global Steel Surpluses Warrant U.S. Section 232 Import Measures. Economic Policy Institute. March 24.

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John Dunham & Associates. 2018. The Impact of Potential Aluminum Import Tariffs or Quotas on America’s Malt Beverage Industry. Prepared for the Beer Institute, Washington, D.C. March 2018.

Lütkepohl, Helmut. 2005. New Introduction to Multiple Time Series Analysis. New York: Springer.

Naughton, Keith. 2018. “Ford Calls Rising Steel, Aluminum Prices ‘Significant Headwind.’” Bloomberg. August 8, 2018.

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A strong domestic steel industry is critical to U.S. national defense, to the health of America’s critical infrastructure, and to the competitiveness of many domestic manufacturing industries. Beyond supplying high-quality steel in sufficient quantities to meet national defense needs, the U.S. steel industry also plays a critical role in supporting the welfare of other industries essential to the broader health and operation of the economy and government. For decades, chronic global steel supply gluts have undermined the U.S. steel industry with surging imports to U.S. markets undercutting prices, domestic production, employment, and investments. This oversupply jeopardizes the fundamental health of the U.S. steel industry—one of the cleanest and most energy-efficient steel industries globally.

Global steel surpluses are the result of chronic global excess steelmaking capacity in major exporting countries, including China, India, Brazil, Korea, Turkey, the EU, and other nations, much of it from state-owned and state-supported enterprises that are heavy polluters. In 2018, the United States determined that steel imports posed significant risks to national security and imposed a 25% tariff and other trade remedies on certain steel products under Section 232 of the Trade Expansion Act of 1962. This report examines the impacts of these measures on domestic steel production and consuming industries, and it recommends that these measures be retained until a multilateral solution to the problem of global excess steel capacity can be achieved.

Key conclusions of this report include:

• The U.S. steel industry is a vital component of the American economy. In 2017, prior to Sec. 232 import measures, the U.S. steel industry supported nearly 2 million jobs that paid, on average, 27% more than the median earnings for men and 58% more than the median for women.

• Global steel markets are plagued by chronic excess capacity. Measured by the Organisation for Economic Co-operation and Development (OECD), global excess capacity is 5.8 times the productive capacity of the entire U.S. steel industry. Massive overcapacity driven by subsidies and other anti-competitive policies can only be disposed of by these producers flooding U.S. and other markets with exports, posing material harm to U.S. steel producers and risking the U.S. industry’s ability to maintain operations, grow, and invest in areas essential to national defense, critical infrastructure, and broader economic welfare.

• The economic picture for U.S. steel producers brightened considerably beginning in 2018 until the pandemic began. Following implementation of Sec. 232 measures in 2018—and prior to the global downturn in 2020—U.S. steel output, employment, capital investment, and financial performance all improved. In particular, U.S. steel producers announced plans to invest more than $15.7 billion in new or upgraded steel facilities, creating at least 3,200 direct new jobs, many of which are now poised to come online. In addition, more than $5.9 billion was invested by nine firms in plant acquisitions as part of industry restructuring to increase efficiency, preserving additional jobs at those facilities.

• Administrations dating back to the mid-20th century have worked to mitigate the effects on U.S. steel producers of unfair global practices. For decades, unfair trade practices have threatened the U.S. steel industry with repeated crises. In this context, the recent Sec. 232 import measures simply continue a long thread of executive policy actions to provide relief for the damages wrought on U.S. producers by unfair competition and global surplus capacity in steel. For example, President Obama pressed the excess capacity issue through diplomatic channels at the G20 and in the U.S.-China Strategic and Economic Dialogue and under U.S. law, overseeing 370 trade remedy actions on imported steel products.

• China has massively and rapidly expanded its steel production capacity. China, the world’s largest steel producer, used subsidies and other forms of distortionary government support to expand steel capacity by 418%, or 930 million metric tons (MMT), since 2000, such that by 2019 it controlled just shy of half of global steel capacity. Chinese steel firms are also investing in developing capacity overseas, including in Europe, Asia, and Latin America, in efforts to evade trade enforcement actions.

• Countries across several continents followed in China’s footsteps, developing more excess capacity. Rapid growth in overcapacity is not limited to China. Other major steel-producing countries achieving rapid capacity growth between 2000 and 2019 include India, Turkey, Iran, South Korea, Vietnam, Russia, Brazil, Mexico, and Taiwan, with increases ranging from 8 MMT in Taiwan to 95 MMT in India. These are all countries where the state dominates or plays a significant role directing steel and other heavy industries, where government policies provide trade-distorting support to steel producers, or where producers have histories of unfair trade the in U.S. market. Governments are also intervening in markets to maintain capacity, including in the EU.

• Rapid expansion elsewhere comes with falling domestic production. In the United States, by contrast, total steel production capacity fell by 5.5 MMT to 110 MMT in 2019, with world market share shrinking to less than 5% in 2019 from 10% in 2000.
• Section 232 measures delivered near-immediate benefits. Once implemented in 2018, such Sec. 232 steel import measures as 25% tariffs on imported steel and import quotas on select countries helped curb U.S. steel imports by 27% by 2019. Import penetration of the U.S. market fell to 26% of all steel consumed in the United States in 2019, from 35% in 2017.
• Section 232 measures have had no meaningful real-world impact on the prices of steel-consuming products (such as motor vehicles). Econometric analysis shows that price changes in basic steel products had statistically zero or economically negligible causal effects on prices of “downstream,” or steel-using goods, including new motor vehicles, construction equipment, electrical equipment and household appliances, motor vehicle parts, nonresidential construction goods, food at home, and durable goods more broadly—industries accounting for the majority of U.S. steel consumption. This lack of impact is unsurprising, given that steel is just one cost in a long list of inputs to production.
• Widespread exclusions to Section 232 measures mitigate positive economic impacts. Despite benefiting U.S. steel producers and having no discernible impact on steel consumers, Sec. 232 import measures have been progressively undermined by nearly 108,000 product-specific exclusions through July 2020 alone and broad, countrywide tariff exemptions for roughly one-third of all imports.
• Jobs, national security, and the steel industry itself are at risk if Section 232 measures are discontinued or weakened in the post-pandemic economy. The diminished global economic outlook as the world emerges from the COVID-19 pandemic means that the brief reprieve from a global supply glut and nascent recovery enjoyed by U.S. steelmakers is likely to evaporate. Premature relaxation or elimination of Sec. 232 measures, in the absence of any concrete measures to eliminate excess capacity and trade-distorting policies that contribute to the global steel glut, would put the U.S. steel industry at risk, imperiling new investments and hundreds of thousands of good jobs in steelmaking and in other indirect and induced jobs supported by steelmaking activity.
• Relaxing or reversing Section 232 measures also would provide an advantage for low-priced, high carbon-polluting producers overseas.
• A permanent global solution is the best answer. The Biden-Harris administration should press for a permanent multilateral solution to the chronic problem of excess global steel production capacity. But until such a solution is achieved, national security concerns and ensuring a sustainable economic recovery for the steel industry require the continuation of comprehensive Sec. 232 import measures and other policies to preserve the U.S. steel industry.

Introduction

In January 2018, the U.S. Department of Commerce (Commerce) concluded an investigation determining that imports of steel products pose significant risks to U.S. national security and the industry’s ability to maintain operations, grow, and invest in areas essential to national defense, critical infrastructure, and broader economic welfare under Section 232 of the Trade Expansion Act of 1962 (BIS 2018). Sec. 232 provides the president with authority to impose restrictions on products for which an investigation determines that the quantity or circumstances of imports to the United States “threaten to impair the national security” (CRS 2020).1 Beyond supplying high-quality steel in sufficient quantities to meet national defense needs, the U.S. steel industry also plays a critical role in supporting the welfare of other industries essential to the broader health and operation of the economy and government.

Following the Commerce determination, President Trump authorized tariffs of 25% on imported steel products in March 2018.2 The move also provided flexibility in implementation with respect to country of origin and product coverage and allowed domestic parties to petition for exclusion from tariffs where substitute domestic-sourced products were insufficiently available.3 This action follows a continuous thread of presidents—including President Obama—seeking to redress unfair trade practices that for decades have kept the U.S. steel industry on the brink of crisis.

President Biden and his administration undoubtedly will want to reevaluate the policies inherited from their predecessors. To provide perspective for this reevaluation, this report reviews recent developments in global steel markets and analyzes the economic impacts of Sec. 232 steel import measures to assess their efficacy in reversing the long-term trends undermining U.S. steel producers, as well as for evaluating the relative costs and benefits of this policy. Specifically, we examine the effects of Sec. 232 measures on:

• the decades-long problem of chronic global surplus capacity in steel plaguing U.S. producers
• the economic viability of U.S. steel producers
• downstream consumers of steel products
• expected effects of prematurely relaxing or removing Sec. 232 measures

The results presented here demonstrate that Sec. 232 measures on imported steel products remain an important and necessary policy tool. The U.S. steel industry is critical not just for national defense, but also for infrastructure sectors, including electricity systems and equipment, transportation infrastructure and equipment, food and agricultural systems, water systems, energy security and independence, and metal-making and other advanced manufacturing uses. It is also a vital component of the American economy. In 2017, prior to the Sec. 232 import measures and the pandemic, the U.S. steel industry supported nearly 2 million jobs that paid, on average, 27% more than the median earnings for men and 58% more than the median for women (Schieder and Mokhiber 2018; AISI 2018).

Currently, the United States has an excessive dependence on unreliable foreign sources to supply national needs. In 2020, the pandemic and resulting economic contraction showed the dire consequences of reliance on uncertain foreign supplies for personal protective equipment, critical medical goods, and supplies of many other essential products. Policymakers should heed this sober warning when considering how to secure the future for U.S. steel production.

Policy action under Sec. 232 follows decades of a mounting crisis for U.S. steel producers that risks their continued ability to meet the needs of national defense, critical infrastructure, and the broader domestic economy. Steel producers support good-paying, middle-class jobs both directly and indirectly in related industries and throughout local communities where they serve as anchors for regional economies. In 2001, a similar Commerce investigation found “no probative evidence” that imported semi-finished steel products threatened U.S. producers (Bureau of Export Administration 2001). This determination resulted in severe negative consequences for the domestic industry—soon thereafter, nearly 40 U.S. steel producers declared bankruptcy (CRS 2003).

The threat to U.S. steel producers has only worsened in the intervening period, as chronic overcapacity in foreign steel-producing industries has become a permanent feature of global steel markets, driven by countries supporting their national industries on noncommercial terms. A flood of underpriced imports to the United States and third-country markets has done significant harm to U.S. producers and put the future viability of U.S. steel production in jeopardy.

Section 232 measures on imported steel products serve as a last resort to preserve the U.S. steel industry and domestic industrial base. To be certain, the best policy outcome would be for President Biden to achieve a permanent, multilateral solution to the chronic problem of global excess steel capacity. But the failures of decades-long efforts to eliminate global overcapacity through multilateral diplomatic engagement, coupled with foreign governments’ failures to address persistent and growing excess capacity, leave U.S. policymakers to choose between Sec. 232 measures and losing an industry critical for national security and broader economic well-being. Our analysis finds the choice is clear: President Biden should maintain these measures while pursuing multilateral efforts to achieve a long-term solution to unfair competition in global steel. Backtracking on Sec. 232 measures now, without a global solution to surplus capacity, would leave the U.S. industry and steelworkers in an even more precarious situation as more steel production and good-paying American jobs are moved offshore, including to countries with the worst environmental records.

Chronic global overcapacity threatens U.S. steel industry

Over the past several decades, chronic conditions of oversupply have come to define global steel markets—there is significantly more capacity to produce steel than there is demand for steel around the world. This chronic excess capacity is a direct result of policies pursued in many countries to support domestic steel producers on anti-competitive terms, with negative consequences for producers elsewhere around the world. It is also due to the basic economics of production in highly capital-intensive industries like steel, which encourages firms to maintain high levels of production capabilities. For decades, the United States has sought multilateral solutions to this persistent problem to little avail. Scant progress on the excess capacity issue made through diplomatic channels, and continued deterioration of the situation faced by producers operating on a commercial basis, left few other viable options for U.S. policymakers.

Surplus capacity puts downward pressure on prices for steel products, squeezing producer profit margins to an extent that threatens the ability of firms to service debts; to invest in research and development in more advanced products and cleaner production technology; to maintain workers’ jobs, compensation, and retiree pensions; and even to remain financially solvent. Businesses incur both fixed costs and variable costs in the course of steel production. Variable costs change with the quantity a firm produces, whereas fixed costs must be incurred no matter how much a firm produces. For example, in the case of steel, variable costs include the cost of material inputs like iron ore, scrap, and coal, as well as electricity and compensation for workers. However, capital-intensive industries like steel face enormous fixed costs for investments in production facilities and equipment that dominate total costs of production.4

The capital intensity of steel production has several economic consequences that contradict textbook economic models of production and competition. First, in industries like steel, the capital-intensive nature of production means that producers face increasing returns to scale—the more raw steel that is produced, the more efficient it is to produce additional output—such that the minimum efficiency of scale for entering the market with competitive costs is so large as to create a nontrivial addition to industrywide capacity (Crotty 2002). That is, in order to be viable, steelmakers must maintain large production capacity and, when expanding capacity, must add capacity in large chunks. Second, because fixed costs of production dominate variable costs, it is almost always desirable for producers to operate near full capacity in order to minimize the average cost of production. For producers in many countries, production exceeds what can be consumed in domestic markets, and the excess must be disposed of through exports.

Finally, the capital invested in fixed assets is quite specific, meaning the equipment cannot be easily redeployed to other uses outside of steel production, as is typically assumed in textbook models of economic competition. This means that, typically, productive capacity of financially nonviable steel producers is not removed from the market, but rather acquired by other producers in better financial standing. Thus, the market mechanism of price competition and creative destruction does not work well to self-regulate excess capacity in the industry (Crotty 2002). In fact, the OECD finds that foreign governments maintain policies and implement barriers that prevent the contraction of steelmaking capacity during economic downturns (Rimini et al. 2020). Combined, these features of the steel industry create incentives for producers to build big and run hot, no matter what other producers in the market do. But when all producers follow this logic, the result, in aggregate, is chronic overinvestment in productive capacity.

In order to maintain the viability of national steel industries under such financial conditions, many countries have instituted policies designed to maintain and expand production on noncommercial terms or other policies impermissible under international trade rules like the World Trade Organization (WTO)’s Agreement on Subsidies and Countervailing Measures. Commerce and the U.S. International Trade Commission, as well as the WTO, regularly find such measures do significant material harm to U.S. producers operating on a commercial basis, discussed in further detail in the box below. At the time of the Sec. 232 report, Commerce had authorized 164 orders on steel imports for illegal dumping or trade-distorting subsidies by 40 countries, with another 20 ongoing investigations (BIS 2018). Some foreign producers also benefit from other policies favorable to domestic industries but not explicitly prohibited by international agreements, such as discretionary regulatory forbearance of environmental standards, discussed later in the report, in the section “Retreating from Section 232 measures would squeeze vulnerable producers, increase greenhouse gas emissions.”

As a result, international disputes over steel capacity and multilateral efforts to resolve them are not new. The European Coal and Steel Community was formed in the aftermath of World War II to resolve continental tensions over steel production, providing a foundation for the European Union. The United States has been involved in international steel diplomacy since at least the Lyndon Johnson administration. In 1989, President George H.W. Bush launched efforts to reach a global agreement to abolish steel production subsidies. In the late 1990s, President Clinton initiated a “Steel Action Plan” in response to a flood of underpriced steel imports being dumped in the U.S. market. On a bilateral basis, President Obama pressed steel capacity issues with China for years through the Strategic and Economic Dialogue. He also moved multilateral partners to launch the Global Steel Forum at the 2016 G20 leaders’ summit, and to find common ground and establish a level playing field through the decades-old Organisation for Economic Co-operation and Development (OECD)’s Steel Committee (White House Office of the Press Secretary 2017).

Despite these efforts, capacity for global steel production continues to substantially exceed global demand for steel products, as shown in Figure A. In 2000, the peak year before a recession and the year before China acceded to the World Trade Organization, global excess capacity of 282 million metric tons already exceeded production by one-third of total output (850 MMT). With surplus capacity already at substantial levels, capacity growth outstripped steel production growth for the next decade and a half. From 2000 to 2015, production volume increased by 91% to 1,625 MMT, while excess capacity grew 166% to 752 MMT.

Figure A

By the mid-2010s, total world production capacity stabilized near 2,400 MMT, and increased demand for steel products led production to increase and capacity utilization rates to rise. However, by 2017 excess capacity still remained high, at 616 MMT, and capacity utilization remained below the level in 2000. Only beginning in 2018 and 2019, coinciding with Sec. 232 measures, did world capacity utilization surpass the level in 2000. The global economic slowdown in 2020 resulting from the COVID-19 pandemic once again sent excess steel capacity up and dragged the capacity utilization rate down. By 2020, excess capacity reached 633 MMT, or the equivalent of 5.8 times total U.S. production capacity.

That world production capacity stabilized after 2014 belies significant changes in the composition of steel production capacity by country. Figure B illustrates these changes in the composition of global steel supply by plotting the production capacities of the world’s largest steel-producing countries and country groups in 2000 on the horizontal axis against the percentage change in steel capacities in these country and country groups from 2000 to 2019 on the vertical axis; the size of each bubble indicates each country’s relative share of global steel capacity in 2019. China, the world’s largest steel producer, expanded production capacity by 418% since 2000, such that by 2019 it controlled just shy of half of global steel capacity.

Just the additional capacity installed in China since 2000 exceeds the combined capacity in 2019 of all other individual countries depicted in Figure B. During this time, U.S. capacity contracted 5.5 MMT, and its global market share was cut in half to less than 5% in 2019 from 10% of world capacity in 2000. Although Chinese producers are the largest culprits driving chronic excess steel capacity, they are far from alone in aggressive expansions that have displaced other producers and reshuffled the structure of world production. Other major steel-producing countries achieving rapid capacity growth between 2000 and 2019 include India (95 MMT, 280%), Turkey (30 MMT, 151%), Iran (27 MMT, 300%), Korea (26 MMT, 47%), Vietnam (22 MMT, 2,036%), Russia (21 MMT, 31%), Brazil (17 MMT, 51%), Mexico (9 MMT, 46%), and Taiwan (8 MMT, 40%). Each of these countries features state-dominated or state-directed economies, trade-distorting government policies supporting steel producers, or a history of shipping unfairly traded steel products to the U.S. market.

Figure B

A multilateral solution to the chronic problem of global excess steel capacity remains essential. But until that time, the inefficacy of market mechanisms to address surplus overcapacity and national policy distortions introduced by foreign trade partners will continue plaguing U.S. steel producers, risking the industry’s survival at a scale necessary to meet national security demands.

Section 232 measures improve industry conditions, spur investments and jobs

Given that the problem of global excess capacity for U.S. steel producers is clear, policymakers should ask: “Are Section 232 measures on imported steel working to improve their conditions?” In considering this question, it is important to understand that the effectiveness of relief has been undermined by considerable “leakage” from Commerce-granted exclusions and broad countrywide exclusions that have curtailed tariff coverage on imported steel. Nevertheless, our analysis demonstrates that Sec. 232 measures remain critical to the long-term prospects of U.S. steel producers. A survey of publicly available sources reveals that following implementation of Sec. 232 measures, U.S. steel producers announced new investments, upgrades, plant expansions, and reopenings of idled facilities in at least 15 states, including plans to invest more than $15.7 billion in new or upgraded steel facilities, creating at least 3,200 direct new jobs, many of which are now poised to come online (see Appendix Table 1A). In addition, more than $5.9 billion was invested in plant acquisitions by nine firms, as part of industry restructuring to increase efficiency, preserving additional jobs at those facilities (see Appendix Table 1B).8

Individual anecdotes provide a suggestive initial glimpse at the effects of Sec. 232 steel import measures. But a more systematic assessment of available data demonstrates that the import measures coincided with improving conditions for U.S. producers—prior to the pandemic-related global recession beginning in 2020. Relief from the pressure of anti-competitive steel imports facilitated recovery of industrywide sales margins (a measure of profitability), production and capacity utilization rates, and a resurgence of new investment in steel industry fixed assets. Importantly, as discussed in the next section, these measures achieved improvements for U.S. steel producers without causing harm to downstream consumers of steel products in the United States.

From the trough of the Great Recession in 2009, U.S. steel imports rose sharply from 14.7 MMT to 40.2 MMT by 2014, as seen in Figure C. A series of nearly 69 new anti-dumping and countervailing duty determinations between 2014 and 2016 curbed the inflow of steel imports to 30 MMT in 2016—temporarily (USITC 2021).9 However, many foreign producers evaded these import surge measures by relocating steel production and processing to third countries, and imports climbed once again, reaching 34.5 MMT in 2017. But the Sec. 232 measures successfully slowed the pace of imports in 2018 and 2019, when imports fell to just 25.3 MMT. Overall, the volume of steel imports fell 27% between 2017 and 2019—before the pandemic’s “Great Lockdown” slowed U.S. and global economic activity. Separate data analysis shows that import penetration of the U.S. steel market fell to 26% of all steel consumed in the United States in 2019, from 35% in 2017. As a result, the rate of capacity utilization for U.S. steel producers rose to 80% in 2019 from 72% in 2017 (WSA 2020a; OECD 2020a). Commerce (BIS 2018) found that an 80% capacity utilization, sustained over the business cycle, is a critical threshold for U.S. steel producers to achieve long-term financial viability.

Figure C

Sec. 232 measures placing tariffs and quotas on foreign steel products were intended to create some breathing room for U.S. steel producers to recover market share and sustainable financial conditions enabling them to increase domestic production—which they did. The Sec. 232 measures have afforded the U.S. steel industry an opportunity to recover to a level of financial performance not experienced since before the Great Recession (Figure D), although this recovery has been undermined as exemptions from Sec. 232 measures allowed “leakage” of uncovered imports, and as recession from the pandemic’s 2020 Great Lockdown set in. Following the Great Recession of 2007–2009, U.S. steel producers strained to achieve profitability. From the third quarter of 2009 through 2016, net income for the U.S. steel industry averaged just $73 million. Over the same period, net income as a share of sales—a measure of profitability—averaged 0%. In 2018, the year Sec. 232 measures were first imposed, net income in the steel industry reached $7.9 billion, or 6.4% of sales—its highest level since the real estate construction boom that preceded the Great Recession. Since then, however, the domestic industry has faced serious challenges. In 2019, the industry’s net income receded to $2.9 billion, and in 2020 it sunk back into negative territory, posting losses with the pandemic-induced global recession.

Figure D

U.S. steel producers recovered with the Sec. 232 measures, bringing idled capacity back online with expectations for improving market conditions. However, more recently, the erosion of import coverage under Sec. 232 measures has coincided with declining prices and financial performance in the industry. Although the Sec. 232 measures initially covered all steel imports, Commerce has granted nearly 108,000 product exclusion requests from Sec. 232 measures as of July 2020 (CRS 2020; U.S. Department of Commerce 2021). A number of significant steel-producing countries, including Argentina, Brazil, Canada, Mexico, and South Korea, also obtained outright exemptions from Sec. 232 measures or quantitative quotas to replace import tariffs. These exclusions and exemptions significantly curtailed the coverage of Section 232 measures, although the measures remain significant in reversing the trend of declining viability of the U.S. steel industry. Today, a majority of steel products are imported to the United States either on a duty-free basis or under Sec. 232 product exclusions.

The U.S. steel industry’s initial recovery under Sec. 232 measures and the expectations of relief from conditions of chronic global excess capacity helped draw new investments into U.S. steel production (Figure E). New investment, adjusted for inflation, surpassed $5 billion in 2018 and reached nearly $5.9 billion in 2019. However, the dwindling coverage of Sec. 232 measures mentioned above and resulting decline in net income seen in Figure D will make it difficult for the industry to sustain this investment trend and could put many producers in further financial jeopardy. As discussed earlier, capital-intensive investments to upgrade and expand production are long-lived fixed costs that only can be reversed at prohibitively high cost. Firms that have made substantial new investments under the expectations of strong domestic demand and continuing Sec. 232 import relief may be deterred from future investments in technological upgrading and be squeezed by debt service commitments; those exploring expansion will likely shelve their plans.

Figure E

Despite a 25% tariff, the Sec. 232 measures had a limited effect on U.S. import prices of steel products, as seen in Figure F. The product categories in Figure F represent roughly three-fourths of total U.S. steel imports. Unit prices for imports of most steel products increased from 2017 to 2018—the year Sec. 232 import measures began. But then, import prices fell in 2019 and again in 2020, such that overall, averaged across all products, the import price of steel fell to $833 per metric ton in 2020 from $845 per metric ton in 2017.

Figure F

Sec. 232 import measures coincided with and contributed to an increase in prices for steel products in the U.S. market, as can be seen in Figure G, comparing prices paid to domestic steel producers relative to those paid by U.S. steel consumers purchasing comparable products on international markets for import. Unsurprisingly, both U.S. producer and import prices follow a common trend, although imports generally are lower priced than U.S.-made steel, as excess capacity and trade-distorting foreign government policies depress global prices. As the world emerged from the Great Recession in July 2009, particularly with China’s outsized stimulus investments in infrastructure and real estate construction (Hersh 2014), steel prices around the world began rising sharply. Steel demand was so strong that it pushed up prices for key steel inputs globally, including iron ore and coal (World Bank 2020). Then, as discussed in Section 2 above, expanded world steel production and surplus capacity through the middle of the last decade began driving prices down.

Figure G

Following implementation of Sec. 232 measures, Figure G shows domestic steel prices rose faster than U.S. import prices. This is due to a combination of the Sec. 232 measures, other trade remedies—including anti-dumping and countervailing duty orders—and the appreciation in value of the U.S. dollar relative to foreign currencies, making foreign products comparatively less expensive in dollar terms. These factors drove a wedge between domestic and foreign prices, which enabled U.S. steelmakers to achieve more sustainable operating margins. As input prices again eased in late 2018, steel prices fell in the U.S. market and globally—although they likely would have fallen further were it not for Sec. 232 import measures.

In recent months, U.S. and foreign steel prices are on the upswing—likely a temporary phenomenon caused by the lag between increasing demand as parts of the world economy recover from the Great Lockdown and the re-employment of steelmaking capacity—which, for blast furnace operations in particular, can take time and may occur only after market conditions create confidence that a facility can operate at a high level of capacity for a sustained period. In this environment, maintenance of Sec. 232 import measures will remain critical to ensuring the economic stability and financial viability of the U.S. industry. Country- and product-specific trade remedies, though significant, on their own have proven insufficient to abate the risk to the U.S. steel industry from anti-competitive imports and chronic excess production capacity.

Steel consumers face negligible effects from Section 232 measures

An important concern in assessing the impacts of Sec. 232 measures on imported steel products is how these measures affect downstream industries and consumers of products that use steel inputs. Indeed, as Sec. 232 measures were going into effect, a group of business lobbying associations representing downstream users sent a joint letter to the U.S. Trade Representative expressing this concern and claiming “significant harm” from this policy (Industry Week 2018). Our analysis in this section shows this claim proved incorrect.

Critics of import measures more broadly, including those levied in 2018 against China for unfair trade practices pertaining to technology transfer, intellectual property, and innovation (USTR 2018), often point to a recent Federal Reserve study purporting to find that tariffs are associated with negative outcomes for the U.S. manufacturing sector (Flaaen and Pierce 2019). However, this analysis should be treated with a healthy dose of skepticism due to myriad methodological issues that introduce statistical bias and call into question the validity of their findings.10 Weaknesses of Flaaen and Pierce’s (2019) results are illustrated in their own Figures 4 and B3, which demonstrate that import protection has no statistically significant impact on manufacturing employment, industrial output, or producer prices for virtually all of the period under consideration.

Given the inherent shortcomings of Flaaen and Pierce 2019, we implement an empirical strategy focused more narrowly on steel products and explicitly evaluating the causal effect of changes in the price of steel inputs on the prices of goods using steel. Our econometric analysis demonstrates that this relationship ranges from statistically insignificant (i.e., not statistically different from zero effect) to negligible. In other words, the statistical evidence does not support claims of harm from Sec. 232 measures that were predicted by certain steel-using businesses. This fact should not be surprising: Even in the downstream industries consuming the most steel, steel inputs amount to a minor share of overall production costs.

Harm to downstream industries would occur if Sec. 232 measures significantly increased steel prices, causing increased costs for producers or consumers of primary steel-containing goods, and then those costs squeezed profit margins or consumer welfare—by forcing consumers to either pay more for or consume less of a given product. To assess this linkage between steel input prices and end-user prices, we employ standard, related, and time-tested econometric techniques known as Granger causality analysis and vector autoregression (Granger 1969; Sims 1980). Vector autoregression (VAR) is a statistical method for modeling a system of variables and their interrelationship and co-evolution over time. In this case, we model (1) the price of primary steel inputs, (2) the price of steel-consuming products, and (3) the effective federal funds rate.11

Granger causality analysis uses the VAR model to test for evidence of a statistically causal relationship between the variables in the model. If past values of variable 1 are shown to significantly predict current values of variable 2, then it can be concluded that variable 1 “Granger-causes” variable 2. While the price variable used in this modeling includes the effects of Sec. 232 tariffs and quotas, the results of the statistical test are not limited to the effects of Sec. 232 measures, but rather evaluate whether a change in prices resulting from any factor causes a change in the price of the steel-using good. Technical discussion of this methodology and detailed results are presented in Appendix 2.

We summarize the results of this causal analysis in Table 1. Each row of the table presents a separate VAR model relating the price of a steel-containing product with the price of its most relevant primary steel input(s) and reports the causal effect found on end-use product prices. The end-use products investigated represent the U.S. industries consuming the largest volume of steel products: nonresidential construction, motor vehicles, motor vehicle parts, construction machinery, electrical equipment and household appliances, and food processing (food consumed at home). We also evaluate the possible impacts of Sec. 232 steel measures at a broader level by modeling the effects of steel product prices on aggregated prices for durable goods.

As shown in Table 1, this analysis finds no discernible effect of steel prices causing price changes in new motor vehicles, motor vehicle parts, construction machinery, electrical equipment and household appliances, or, broadly, durable goods. These results, therefore, suggest that even if Sec. 232 measures caused an increase in the price of steel products, one would not expect a significant impact on the price of downstream goods. For prices of nonresidential construction goods and food consumed at home, the price of relevant steel inputs is found to be statistically significant in causing changes in the prices of steel-using products.12 While finding a statistical relationship between steel input prices and final goods prices, the same analysis shows that the economic significance of the impact is negligible: A 1% increase in steel input prices caused a 0.1% change in the price of construction goods and a less than 0.05% change in the price of food at home. However, as discussed in Appendix 2, causal analysis suggests the relationship between steel inputs and construction goods actually runs in the opposite direction, with demand for construction goods driving prices in the market for intermediate inputs.

Table 1

To recap, while conceptually a relationship exists between input prices and final goods prices, econometric analysis of the causal relationship between prices finds effects ranging from statistically zero to essentially nothing. Sec. 232 measures simply did not have a meaningful, real-world impact on prices for steel-consuming products. This fact should not be surprising. Even in the industries that consume the largest volumes of steel products, steel is just one cost in a long list of inputs to production. Despite these industries accounting for the lion’s share of steel consumption in the U.S. economy, the cost of their steel inputs is minor relative to their gross production. As shown in Table 1, the steel content as a share of total production ranges from 1% in food consumed at home to 9.8% in the motor vehicle parts industries. Illustrating the point in dollar terms, the average passenger car contains roughly 900 kg of steel (WSA n.d.). At a current cost of $1,048 per metric ton, the steel inputs amount to just 2% of the sales price for the average new U.S. car (Steel Benchmarker 2020; Kelley Blue Book 2020). In contrast, electronics components make up roughly 40% of a new car’s price (Deloitte 2019).

Retreating from Section 232 measures would squeeze vulnerable producers, increase greenhouse gas emissions

Thus far, we have seen that Sec. 232 import measures have helped improve market conditions for U.S. steel producers amid chronic global excess capacity that threatens their financial viability. We also have seen that the impact of these measures on steel-consuming U.S. industries has ranged from zero to economically insignificant. Furthermore, the benefits of this policy have eroded since it began as more steel imports have been exempted from the Sec. 232 regime. As the world looks to move forward from the economic shock of the Great Lockdown caused by COVID-19, it is clear that eliminating or even further relaxing the steel import measures likely would pose serious economic consequences for U.S. steel producers. Two important points are noteworthy here.

First, a slow and uneven recovery from the 2020 economic downturn is expected, with global demand for steel products uncertain. The International Monetary Fund (IMF) recently revised down its global economic growth forecast for 2021; it projects “limited progress toward catching up to the [expected] path of economic activity for 2020–2025” (IMF 2020).13 Families around the world have suffered deep economic scarring from lost jobs and income and depleted savings—not to mention, tragically, the many who have lost prime wage-earners. Millions of people worldwide who contracted the virus are likely to suffer long-term effects, reducing prospects for employment and earnings and allocating a larger share of disposable income toward health care services and away from goods consumption. At the same time, the downturn and its long-lasting effects have dampened public-sector revenues at a time when governments have undertaken unprecedented expenditures meeting the public health crisis and providing social protections. The enduring effects of this shock will dampen, in the near term, a recovery of household consumption and, in turn, business investment. In the longer term, the human toll will dampen prospects for economic potential, dragging down investments in human and fixed asset capital and the productivity growth these investments provide.

Economic recovery, of course, is contingent on how well world governments abate the global health crisis, but it is clear that even under optimistic scenarios, demand for steel production will remain muted for some time. U.S. steel demand declined 16% in 2020, and in 2021 it is expected to remain more than 10% below 2019 levels (WSA 2020c). Globally, steel demand declined 6.4% from 2019 to 2020 and is forecast to remain nearly 3% below 2019 levels (OECD 2020c). At the same time, countries have not retreated from policy efforts to prop up national steel industries (see text box, “Widespread government interventions drive unfair trade in steel products”) and are continuing to install additional productive capacity. The OECD (2020b) projects that by 2022, producers will add as much as another 3% of steelmaking capacity worldwide, concentrated in Asia and the Middle East.

Together, these trends point to increased excess steelmaking capacity and lower capacity utilization rates that would drive prices down and squeeze U.S. steel producers who face competition with imports produced on a noncommercial basis. These are exactly the pressures Sec. 232 measures are designed to address, in the absence of multilateral agreements to manage excess capacity. Retreating from these measures now, particularly after many U.S. companies committed to new investments in production (Figure E; Appendix 1), would leave U.S. steel producers in untenable financial positions, further jeopardizing their capacity to meet national security needs.

Second, a significant ancillary benefit of Sec. 232 import measures has been to divert steel production to more environmentally sustainable producers. Relaxing Sec. 232 measures would reverse this progress as the world looks to decarbonizing and achieving net-neutral emissions by midcentury. The U.S. steel industry is one of the cleanest and most energy-efficient steel industries globally. A 2019 report measuring the CO2 emissions intensity of steel industries in 15 major steel-producing countries ranked U.S. steelmakers among the least CO2 intensive industries—with industries in Brazil, Canada, China, France, Germany, India, Japan, South Korea, and other countries having higher CO2 emissions intensity (Hasanbeigi and Springer 2019, Figure 14).

Even this analysis understates that difference in environmental impact, as it does not account for the substantial pollution from ocean freight required to transport raw materials and finished products in supply-chain webs around the world before foreign steel products can reach the U.S. market (ENVI 2020). If Sec. 232 measures are relaxed, it is precisely the most polluting national steel industries, in countries that have rapidly expanded capacity at the expense of more efficient producers, that stand to capture marginal changes in market share. And as excess capacity further squeezes prices and profit margins, firms will face difficulty investing in new technologies to allow for greener steel production and will risk being shut out of markets as consumers develop preferences for low-carbon products.

Conclusion: The Section 232 trade measures helped slow the flood of unfair imports that was squeezing the U.S. steel industry without hurting downstream steel-using producers and consumers

Surging steel imports have undermined domestic steel production, prices, employment, profits, investments, and the fundamental health of the U.S. domestic steel industry. Global steel surpluses are the result of chronic global excess steelmaking capacity in major exporting countries. The steel Section 232 trade restraints imposed in 2018, including both tariffs and quotas on imports from selected countries, helped slow the flood of steel imports. Following imposition of these measures, U.S. steel output, employment, capital investment, and financial investment all improved.

Meanwhile, statistical analysis in this report has demonstrated that Section 232 measures have had no economically significant impacts on the prices of downstream products. Despite the benefits of the Section 232 tariffs for the domestic steel industry and its workers, and the minimal impacts of trade restraints on downstream industries, these measures have been progressively weakened by nearly 108,000 product-specific exclusions and broad tariff exemptions for a number of countries.

The domestic steel industry is just beginning to emerge from the depths of the COVID-19 recession with a steep hill to climb, given widening excess global steel capacity. With the right policies and major investments planned by the new administration in economic rebuilding, clean energy, and infrastructure construction, U.S. steel producers can be poised for a substantial upswing in employment, output, and investment that fuels growth in clean, efficient, state-of-the-art domestic steel production. The window to this opportunity could be slammed shut by the premature and unplanned elimination of the Section 232 import measures.

Acknowledgments

The authors thank Jori Kandra for technical and research assistance and Colleen O’Neill and Lora Engdahl for editing assistance. This research was made possible by support from the Partners for American-made Steel.

About the authors

Adam S. Hersh, Ph.D., is director of Washington Global Advisors, LLC, and a research associate at the Political Economy Research Institute, University of Massachusetts Amherst. Hersh was formerly chief economist for the Congressional Joint Economic Committee, Democratic staff; senior economist at the Franklin and Eleanor Roosevelt Institute and the Center for American Progress; a visiting scholar at Columbia University’s Initiative for Policy Dialogue and the Shanghai University of Finance and Economics; and a research fellow at the University College, London’s Institute for Innovation and Public Purpose. He is a contributing author with Joseph Stiglitz of Rewriting the Rules of the American Economy: An Agenda for Growth and Shared Prosperity (2015).

Robert E. Scott joined the Economic Policy Institute in 1996 and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade, and manufacturing policies and their impacts on working people in the United States and other countries, the economic impacts of foreign investment, and the macroeconomic effects of trade and capital flows. He has published widely in academic journals and the popular press, including The Journal of Policy Analysis and Management, The International Review of Applied Economics, and The Stanford Law and Policy Review, as well as The Los Angeles Times, Newsday, USA Today, The Baltimore Sun, The Washington Times, and other newspapers. He has also provided economic commentary for a range of electronic media, including NPR, CNN, Bloomberg, and the BBC. Mr. Scott has a Ph.D. in economics from the University of California, Berkeley.

Endnotes

1. 19 U.S.C. §1862; https://www.law.cornell.edu/uscode/text/19/1862.

2. Adjusting Imports of Aluminum Into the United States, 83 Fed. Reg. 25849–25855 (March 15, 2018).

3. Adjusting Imports of Steel Into the United States, 83 Fed. Reg. 25857–25877 (March 15, 2018).

4. The capital-to-labor ratio for primary metals producers is 76% higher than for durable goods manufacturing industries overall. See BLS (2020).

5. This section is based, in part, on information summarized in Examples of Policies and Practices Contributing to the Global Excess Capacity Crisis, a report by the American Iron and Steel Institute and the Steel Manufacturers Association included at the end of this report.

6. There are two anti-dumping orders in place against Canadian steel products, and there are both anti-dumping and countervailing duty orders in place against wind towers, a major steel-using product. South Korean steel orders include six countervailing duty orders and 26 antidumping orders. EPI analysis of USITC (2021).

7. Countries receiving Chinese direct foreign investment in steel include Cambodia, Malaysia, Indonesia, Myanmar, Pakistan, the Philippines, Bolivia, Vietnam, the United Kingdom, and the Netherlands. See OECD (2020b).

8. These are direct steelmaking jobs; the investments would also generate indirect employment through the goods and services procured in expansion products, as well as induced employment generated by the incomes from direct and indirect employees.

9. The USITC (2021) lists 276 anti-dumping and countervailing duties in effect on steel products (categories ISM, ISO, and ISP) as of December 28, 2020, and of those, 69 orders went into effect between 2014 and 2016.

10. It is worth briefly considering several reasons why. First, the core explanatory variable—“import protection”—ignores the actual incidence and evolution of protection over time as more products received exclusions from tariffs. Second, their statistical model explicitly embraces violations of the core assumptions on which the statistical method is built, biasing the results. In particular, equation 7 specifies measures of import protection, input costs, and foreign retaliation as “independent” variables associated with the dependent variables of manufacturing employment, output, and producer prices. In fact, as Flaaen and Pierce appropriately theorize, input costs and foreign retaliation are, at least in part, caused by import protection. Finally, Flaaen and Pierce’s analysis conflates the effects of Sec. 232 import measures with Sec. 301 trade remedies. Conditions of chronic excess global steel capacity—explained in Section 2 above—mean that market conditions are significantly different for steel products than for other manufactured goods, suggesting that pooling data for steel products and other manufactured goods more broadly is inappropriate and may bias estimates of the statistical significance.

11. The federal funds rate—the interest rate at which depository institutions borrow and lend federal balances held at Federal Reserve Banks—is the primary target for Federal Reserve monetary policy actions and is linked both in theory and in practice to changes in price levels as well as to the level of demand for goods and services across the economy.

12. The causal effect of steel prices on food-at-home prices shows only weak statistical significance, at the 90% probability threshold; the model for other significant goods found 95% to 99% probability.

13. What’s more, as dour as the IMF’s assessment is, their forecasts are notorious for being overly optimistic. See Rosnick and Weisbrot (2007).

14. Producer Price Index by Commodity: Metals and Metal Products: Iron and Steel (WPU101); Producer Price Index by Commodity: Metals and Metal Products: Cold Rolled Steel Sheet and Strip (WPU101707); Producer Price Index by Commodity: Metals and Metal Products: Hot Rolled Steel Sheet and Strip, Including Tin Mill Products (WPU101703); Producer Price Index by Commodity: Metals and Metal Products: Hot Rolled Steel Bars, Plates, and Structural Shapes (WPU101704); Producer Price Index by Commodity: Metals and Metal Products: Steel Wire (WPU101705); Consumer Price Index for All Urban Consumers: New Vehicles in U.S. City Average (CUUR0000SETA01); Producer Price Index by Commodity: Transportation Equipment: Motor Vehicles Parts (WPU1412); Producer Price Index by Industry: Construction Machinery Manufacturing (PCU333120333120); Producer Price Index by Commodity: Inputs to Industries: Net Inputs to Nonresidential Construction, Goods (WPUIP2312001); Producer Price Index by Industry: Electrical Equipment and Appliance Manufacturing (PCU335335); Consumer Price Index for All Urban Consumers: Food at Home in U.S. City Average (CUSR0000SAF11); Personal consumption expenditures: Durable goods (chain-type price index) (DDURRG3M086SBEA); and Effective Federal Funds Rate (FEDFUNDS).

15. Motor vehicle parts manufacturing requires significant inputs from both hot-rolled sheet and strip as well as hot-rolled bars, plates, and structural shapes. Electrical equipment and household appliances require significant inputs from both cold-rolled sheet and strip and carbon steel wire. Therefore, these products are modeled as a four-equation VAR of the form

where and are 4 × 4 matrices of coefficients.

Appendix 1: New and expanded U.S. steel production under Section 232 measures capacity

Appendix Table 1A

Appendix Table 1B

Appendix 2: Methodology for analyzing causal relationship between steel prices and steel-consuming industries

This appendix outlines the methodological approach for assessing how Sec. 232 measures on imported steel products may affect downstream industries and consumers of products that use steel inputs. Harm to downstream industries and consumers could occur if Sec. 232 measures caused an increase in prices for steel products paid by U.S. users of steel and if those price increases were passed through to producer or consumer prices for steel-embodying goods. In order to assess this possibility, we evaluate a more basic question: Do changes in prices of basic steel products cause changes in steel-using products? This question asks whether any change in steel prices is a significant determinant of goods prices that use steel as an intermediate input, irrespective of what factors cause a change in steel prices.

Data and methodology

To evaluate this question, we estimate reduced-form vector autoregressions (VARs) that model the variables of interest as an interrelated system that co-evolves over time (Sims 1980). The VAR is an attractive analytical tool because it does not force an assumed structural form onto the data. Each variable in the system is modeled jointly as a function of its past values and the past values of the other related variables in the system. After estimating the system, we can evaluate causal relationships between the variables by testing whether past values of one variable are statistically significant determinants of the current value of another variable, following Granger (1969).

Our variables of interest are (1) prices for steel products, (2) prices for steel-using products, and (3) the effective federal funds rate—the interest rate at which depository institutions borrow and lend reserve balances held at Federal Reserve Banks.14 This interest rate is the primary target for Federal Reserve monetary policy actions and is linked both in theory and in practice to changes in general price levels, as well as to the level of demand for goods and services across the economy via the Taylor Rule (Taylor 1993). Data are observed monthly and drawn from the Federal Reserve Bank of St. Louis’s FRED Economic Data, spanning December 2001 to January 2020, or two business cycle expansions, other than for steel wire, for which available data begin in July 2004. Univariate analysis with a modified Dickey-Fuller test (Cheung and Lai 1995) fails to reject the null hypothesis of a unit root for each variable under consideration. While the individual variables are nonstationary (integrated of order one, or first-difference stationary), tests with Johansen’s procedure show that there is no cointegration—or a stable, long-run relationship—between the variables (Johansen 1995), and the system can be modeled with a VAR, as opposed to a vector error correction model.

The VAR model consists of

where   is the natural log of price at time of the relevant steel product input price,   is the natural log of the price of the steel-using product, and is the natural log of the effective federal funds interest rate. The pairings of steel product input prices and steel-using product prices are given in Section 4, Table 1.15 The model estimates parameters , to , and , which are, respectively, a vector of constant terms, 3×3 matrices of coefficients relating the current dependent variable to past values of the independent variables, and a vector of randomly distributed residual with mean zero and uncorrelated across time.

The specific number lags of the dependent and independent variables specified varies for each set of steel product and steel-consuming goods modeled, and they are chosen with some subjectivity, though guided by minimizing a battery of statistical tests, including the likelihood ratio test, the final prediction error, Akaike’s information criterion, Schwarz’s Bayesian information criterion, and the Hannan and Quinn information criterion (Neilsen 2001; Lütkepohl 2005). Results were robust to alternative lag-length specifications. The VAR parameters were estimated simultaneously by the “seemingly unrelated regression” method of Zellner and Theil (1962). Post-estimation, the statistical assumptions were tested to confirm that the VAR parameters are stable (with eigenvalues lying within the unit circle), and that the residual is normally distributed and not serially correlated, indicating that the models are well-specified.

The specific parameters estimated that define the structures of VARs are typically of less concern than how the system behaves when there is an exogenous change in one of the variables. In this case, we are concerned whether a change in the price  causes a change in , evaluated with a Granger (1969) causality test. This evaluates the hypothesis that the coefficients on are jointly statistically significant in determining  against the null hypothesis that the coefficients are all equal to zero. If the test statistic exceeds a critical value at a 95% probability or higher, we can reject the null hypothesis and conclude that Granger-causes . In the event we identify a significant causal relationship, then the system of equations making up each VAR can be used to simulate the effect on of a shock to  by simulating an impulse response function.

Results

Appendix Table 2 reports the Wald test statistic χ² and the associated probability for rejecting the null hypothesis of zero causal effect for each pair of prices. For the majority of end-use products considered, we find no statistical evidence that steel input prices affect the price of end-use products (<95% probability). This means that a change in steel prices is expected to have no effect on the price of end-use goods. We do find statistically significant causal effects (>95% probability) of steel input prices on the prices of nonresidential construction goods and food at home.

Appendix Table 2

For end-use goods experiencing a causal effect of steel prices, we estimate the impact of a 1% increase in steel input prices using an orthogonalized impulse response function, with results summarized in the final column of Appendix Table 2. For each end-use good, the shock from an initial change in steel prices reaches its maximum impact on end-use prices in the following one to two months, then gradually dissipates to zero over the ensuing months, meaning there is no permanent effect on prices.

These were not the only statistically significant causal relationships identified in the VAR modeling. In a majority of the models, Granger analysis finds that the effective federal funds rate has a causal effect on steel product price levels, as theory would predict. We also find that prices of nonresidential construction goods have a causal effect on prices of hot-rolled bars, plates, and structural shapes—more than five times the size of the effect of hot-rolled bar prices on nonresidential construction goods—suggesting that demand for construction projects leads demand, and therefore pricing, of intermediate inputs to construction.

Appendix 3: Countries of concern—examples of policies and practices contributing to the global excess capacity crisis

Interventionist policies by governments around the world have driven a buildup of excess steel production capacity. Because China is the largest source of global excess steel capacity, the crisis is frequently mischaracterized as “just a China problem.” However, as a report from the American Iron and Steel Institute and the Steel Manufacturers Association shows, numerous countries contribute to global overcapacity through state interventions that commonly include: the provision of low-cost inputs, subsidized loans and equity infusions, grants, tax breaks, support for acquisition of overseas raw materials, export restraints on domestically produced raw materials, state-led debt restructuring and other corporate reorganizations, local content requirements, transnational subsidies for establishing third-country operations, and other measures that forestall the exit of inefficient capacity. Read the report, Examples of Policies and Practices Contributing to the Global Excess Capacity Crisis, to learn how global steel overcapacity is fueled by government policies in South Korea, Japan, Vietnam, Indonesia, the Russian federation, Brazil, the Netherlands, Germany, the United Kingdom, Italy, Canada, and Mexico.

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The rapid growth of U.S. trade deficits reflects the combined effects of the COVID-19 crisis, which caused U.S. exports to fall by more ($217.7 billion) than imports ($166.2 billion), and by the persistent failure of U.S. trade and exchange rate policies over the past two decades. The single most important cause of large and growing trade deficits is persistent overvaluation of the U.S. dollar, which makes imports artificially cheap and U.S. exports less competitive.

The U.S. goods trade deficit is increasingly dominated by trade in manufactured products, as shown in the figure below. The manufacturing trade deficit reached record highs of $897.7 billion—98% of the total U.S. goods trade deficit—and 4.3% of U.S. GDP in 2020. Primarily due to these rapidly growing manufacturing trade deficits, the U.S. lost nearly 5 million manufacturing jobs and 91,000 manufacturing plants between 1997 and 2018 alone, and an additional 582,000 manufacturing jobs in 2020.

Figure A

Growing trade deficits with China are the largest single cause of growing manufacturing trade deficits and jobs losses. Between 2001, when China entered the World Trade Organization (WTO), and 2018, growing U.S.–China trade deficits eliminated 3.7 million total U.S. jobs, including 2.8 million jobs lost in manufacturing alone. Although the U.S. trade deficit with China fell by $34.4 million (10.0%) in 2020, China’s total trade surplus with the world increased 27% in 2020 to $535 billion, driven by surging exports of medical supplies and electronic goods. U.S. trade deficits with Hong Kong, Korea, Malaysia, Indonesia, Singapore, Taiwan, and Australia, as well as Mexico and Switzerland all increased significantly in 2020. There is growing evidence that China is evading U.S. trade restrictions by shipping products through other countries (e.g. tariff circumvention).

Growing U.S. trade deficits over the past two decades, which reached record levels in 2020, have decimated U.S. manufacturing. The United States can rebuild domestic manufacturing by rebalancing U.S. trade, and by implementing the Biden administration proposal for a $2 trillion, 4-year program for rebuilding U.S. infrastructure and investing in clean energy and energy efficiency improvements.

The essential elements of this two-pronged strategy for rebuilding the domestic economy are detailed in this report and summarized here:

• Trade and industrial policies that dramatically boost U.S. exports and eliminate the U.S. trade deficit—now roughly $850 billion—within four years. At the heart of these policies are measures to end the overvaluation of the U.S. dollar and rebuild the competitiveness of U.S. manufacturing industries.
• A four-year, $2 trillion program of investments in infrastructure, clean energy, and energy efficiency improvements. This would include investments of $70.2 billion per year in schools and broadband, which would have substantial social benefits. Note also that virtually all (91.6%) of clean energy and energy efficiency investments are for manufactured products.

Following are the key findings of this report:

• Surging exports and major investment in infrastructure, clean energy, and energy efficiency would support between 6.9 and 12.9 million U.S. jobs annually by 2024. The lower-bound estimate includes direct and indirect jobs but not “respending” jobs created as consumers spend more in the economy.
• Of the 6.9 million direct and indirect jobs, at least 471,200 would be construction jobs and 2.5 million would be U.S. manufacturing jobs. Because the jobs supported would be concentrated in high-wage manufacturing (36.4% of jobs supported) and construction industries (6.8% of jobs supported), this strategy would help rebuild U.S. manufacturing and restructure the domestic economy away from low-wage service-sector work.
• Projections of rapid export expansion are not wishful thinking: they are based on the actual export performance in prior periods when the real value of the U.S. dollar was substantially reduced. And there is much room for the dollar to fall: its value has gained 21.4% since July 2014, stagnating U.S. exports and depressing domestic commodity prices, including farm products and incomes.
• Rapidly growing exports in this forecast—especially for U.S. durable goods—along with substantial demand for manufactured products arising from infrastructure and clean energy and energy efficiency investments would support rapid growth in output and employment in a wide range of industries. Rapidly rising demands for fabricated metal products, industrial machinery, computer and electrical products, and transportation equipment (including both motor vehicles and parts, and aerospace products), would generate substantial increases in demand for primary metals (ferrous and nonferrous) and other industrial materials. Production of U.S. energy-based products (crude oil, refined petroleum, and chemicals) also would increase rapidly.
• Within manufacturing, jobs supported would be in both durable and nondurable goods categories. Under the 6.9 million jobs scenario, rapidly growing sectors would include nondurable goods (367,600 jobs), and durable goods (2.1 million jobs). Within durable goods industries, the most jobs will be supported in nonelectrical machinery (436,700 jobs), fabricated metal products (383,700 jobs), transportation equipment (343,800 jobs), electrical equipment (302,700 jobs), and primary metals (248,000 jobs). Within primary metals, 69,900 jobs would be supported in the steel industry. Within transportation equipment will be substantial growth in motor vehicles and parts (188,800 jobs) and aerospace products (127,600 jobs).
• Many sectors outside of manufacturing would experience substantial job growth: transportation (603,400 jobs); agriculture, forestry, and fisheries (588,600 jobs); administrative and support services (454,900 jobs); professional, scientific, and support services (375,300 jobs); wholesale trade (337,100 jobs); and mining (201,400 jobs).
• Rapidly growing exports supported by trade and industrial polices combined with major public investments in infrastructure, clean energy, and energy efficiency would support rapid job creation in all 50 states and the District of Columbia. Jobs supported would be concentrated in regions that have been hardest hit by globalization and outsourcing. Six of the top 10 states in terms of jobs supported as a share of state employment are among the top 10 manufacturing states (as a share of total state employment),  including Wisconsin (6.16%, 181,000 jobs), Indiana (5.95%, 185,900 jobs), Iowa (5.91%, 94,500 jobs), Michigan (5.55%, 251,200 jobs), Ohio (5.51%, 302,400 jobs), and Kentucky (5.37%, 104,100 jobs). Other top-10 job gainers are in energy and resource-intensive states, including North Dakota (6.07%, 24,300 jobs), Wyoming (5.69%, 16,700 jobs), Oklahoma (5.62%, 98,200 jobs), and South Dakota (5.61%, 24,600 jobs).
• Our lower-bound estimate of 6.9 million jobs supported is conservative. The Congressional Budget Office projects that it will take more than five years for employment to return to its pre-recession levels (CBO 2020). In this kind of environment, increases in exports and deficit-financed public investments would generate additional rounds of respending and job creation in the domestic economy (Bivens 2014). Thus our upper-bound estimate of 12.9 million jobs, which includes about 6.0 million respending jobs, is plausible. It is important also to note that these jobs supported are jobs, not job years.2

Introduction: Policy proposals and modeling assumptions

This report evaluates a set of trade and manufacturing policy proposals developed by the Alliance for American Manufacturing (Paul et al. 2020). It also estimates the impacts of a package of infrastructure and clean energy proposals that is based on investments made under a detailed plan developed by the Sierra Club and other civil society groups but at a slightly smaller scale, and for fewer years. That plan, which was analyzed by the University of Massachusetts Amherst’s Political Economy Research Institute (PERI) (Pollin and Chakraborty 2020), is a 10-year plan that would invest $683 billion per year in the elements considered here.3 The plan analyzed here is a four-year, $2 trillion plan.

Trade flows and investment allocations for these activities were prepared in order to project output and employment changes over the 2019–2024 period and thus estimate the increased annual output and jobs supported by 2024, as described below.4

Trade (export promotion and currency rebalancing) projections

Trade projections in this study assume that currency realignment and an aggressive program of industrial policies for recovery result in elimination of U.S. trade deficits in 2024. Currency overvaluation makes U.S. exports more expensive (and suppresses prices of domestic commodities, including gains), while also acting like a subsidy to the cost of all imports (Scott 2020). The policies proposed here are based, in part, on proposals to prioritize industrial policy in the post-COVID-19 world (Paul 2020), which emphasize substantial investment in American-made infrastructure, the reshoring of critical supply chains, enhanced enforcement of Buy America laws, and aggressive enforcement of fair trade policies and the pursuit of high-standard trade agreements. The trade projections are based on actual market behavior in earlier periods of dollar realignment.

For exports supported by currency rebalancing and industrial policies, we examined prior periods of substantial dollar devaluation, including 1985 to 1991 (following the Plaza Accord of 1985) and 2002 to 2008 (the previous period of substantial dollar overvaluation).5 Total U.S. exports increased between 80% and 90% following each of those dollar realignments (Scott 2009 and 2017a). It is important to note that the real value of the U.S. dollar has gained 21.4% since July 2014, stagnating U.S. exports and depressing domestic commodity prices, including farm products and incomes (Federal Reserve Board 2020).

For the projections in this report, we first assumed that exports in each of the individual industries that make up the traded goods portion of the U.S. economy—technically, the detailed, four-digit North American Industry Classification System (NAICS) traded goods industries—would grow at the rate experienced in the 2002–2008 period, with two exceptions, noted here.6 We assume that imports would grow at their actual rate in the 2014–2019 period.7 The initial projections would have resulted in a substantial trade surplus.8 To bring projected trade flows into balance, initial projected exports were then reduced in each sector by 15.5%, resulting in overall trade balance in 2024, as shown in the tables in this report.9

Investment and clean energy projections

The allocation of the four-year, $2 trillion package of investments in infrastructure, clean energy, and efficiency improvement programs was based on allocations developed by Pollin and Chakraborty 2020.10 That report assumes levels of public investment that are about 36% higher than is assumed here (here we look at overall spending of $500 billion a year versus overall spending of $683 billion per year in Pollin and Chakraborty 2020). But the allocations assumed here are in roughly the same proportions as in Pollin and Chakraborty 2020.11 Details of these allocations are summarized in Table 1. (Table 3 shows the allocation of infrastructure and clean energy and efficiency spending by industry.) It is important to note that schools and broadband investments represent $70.2 billion (28.1%), or more than one-quarter of proposed infrastructure investments, which would generate substantial social benefits.

Table 1

Overall economic and employment impacts of trade and investment proposals

Table 2 summarizes the overall impacts of all three components of the program proposed in this report. The top panel of the table shows the economic impact in billions of dollars, and the bottom panel shows the employment impact. The first set of rows in the top panel shows changes in trade flows from 2019 to 2024 resulting from the policies to end overvaluation of the U.S. dollar and rebalance trade. It is assumed that the real value of the U.S. dollar is reduced by approximately 25%, as discussed in the methodology appendix toward the end of this report. Total exports expand by 64.6% between 2019 (actual) and 2024 (projected), while imports increase by only 8.3%. As a result, goods trade balance is achieved in 2024, completely eliminating the U.S. goods trade deficit, which reached $854.3 billion in 2019.

Table 2

The second set of rows in the top panel shows the economic impacts of the fourth year of the new $2 trillion in infrastructure, clean energy, and energy efficiency spending in 2024, reflecting the assumption that public spending on infrastructure and clean energy and energy efficiency investments increases by $500 billion per year in 2021, 2022, 2023, and 2024 ($250 billion per year for each of these purposes). In 2024, the $854.3 billion in increased economic output from rebalancing trade combined with the additional $500 billion yearly spending on infrastructure and clean energy/energy efficiency yields an additional $1.354 trillion in total spending on domestic goods and services (some of which will include imported components). This represents an increase of approximately 6.8% of GDP. It is worth repeating that this increase in spending will only require $500 billion per year in new federal spending; the rest results from increased foreign purchases of U.S. products. The final element of increased demand shown in the top panel of Table 2 is $812.6 billion in induced respending: roughly, how much additional spending happens as the $1.354 trillion in spending makes its way to workers and consumers’ pockets and is respent on consumer goods and services. This figure assumes that there will be a macroeconomic multiplier of 1.6, i.e., a 60% boost to spending in the form of respending. Bivens (2014) reviews the economic literature on multipliers, and notes that infrastructure spending is found to have very high levels of economic multipliers.12 A multiplier of 1.6 is used for that study. Spending on clean energy products, and output from additional U.S. exports, also are likely to have very high multipliers, for similar reasons. Note that multipliers depend in part on the level of excess capacity (economic distress) in the economy. Thus we do not include the multiplier (induced or respending) effects in our main results (jobs supported by industry and by state), but we do include them for informative purposes in our upper-bound estimate of jobs supported and in Table 2 and Table 4.

The employment impacts of these policies are summarized in the bottom panel of Table 2. Note that the employment effects include direct jobs supported or created by a given level of output (an aggregate of all industries) and the aggregate indirect jobs in industries that supply goods to directly affected industries (think auto assembly jobs and the jobs held by those who make auto parts, steel, and rubber, or who provide accounting, finance, staffing, or other services to auto manufacturers).

The U.S. goods trade deficit in 2019 displaced 5.1 million jobs. If trade is balanced, the number of jobs displaced by trade flows is reduced to 1.6 million jobs, for a net gain of 3.5 million direct and indirect jobs supported, as shown in column 3 (see the text box, “Defining jobs: supported vs. created vs. job years”). The reason that there still are jobs displaced under balanced trade is that U.S. imports are more labor intensive, on average, than U.S. exports, as predicted by trade theory, so the U.S. experiences a net loss of jobs.

Infrastructure investments of $250 billion in 2024 would support 2.1 million direct and indirect jobs, and clean energy and energy efficiency investments would support an additional 1.3 million direct and indirect jobs. Overall, the combination of export promotion (balanced goods trade), and expanded public investments will support a total of 6.9 million direct and indirect jobs. In addition, to the extent that multiplier effects are generated by these activities as workers spend their incomes in the economy, up to 6.0 million additional jobs could be supported by these activities. (As noted earlier, multiplier effects are stronger when the economy is struggling than when it is at full employment.)

The fourth and last data column in panel two of the table shows the results of jobs supported or created per category if we break down the additional 6.0 million induced respending jobs by each of the three program areas: export promotion, infrastructure investment, and clean energy/energy efficiency investment. If induced (multiplier) effects are included, trade rebalancing could support an additional 3.1 million jobs, meaning trade rebalancing has the potential to support between 3.5 million jobs (column three) and 6.6 million total jobs (column four). If the overall adjustment in the trade balance is less, then total jobs supported would be smaller. For example, if the trade deficit falls by half, then net export growth will support between 1.8 and 3.3 million additional net jobs.

Similarly, a $250 billion annual increase in infrastructure spending could support an additional 1.8 million respending jobs, meaning the infrastructure spending has the potential to support between 2.1 million jobs (column three) and 3.9 million jobs (column four) when direct, indirect, and induced (respending) jobs are included. Finally, spending on clean energy and energy efficiency could support between 1.3 million and 2.5 million net new jobs. The overall results —roughly 6.3 million direct, indirect, and respending jobs supported—are comparable with Pollin and Chakraborty 2020, when multiplier effects are included.13

Overall, the programs summarized in Table 2 will support a grand total of between 6.9 million and 12.9 million new jobs (depending on the overall level of macroeconomic multipliers in 2024 and thus respending jobs) if the U.S. trade deficit is eliminated in that year.

Economic impacts by industry

Overall economic impacts of the three trade and investment proposals by industry are summarized in Tables 3 and 4. Table 3 reports changes in imports, exports, and the trade balance from implementing export promotion policies that eliminate the trade deficit by 2024, and Table 4 reports how the $500 billion in new spending on infrastructure, clean energy, and energy efficiency in 2024 breaks down by industry.

Table 3

The trade model is based on actual trade behavior during the 2002–2008 period, the last time the dollar experienced a sustained declined of about 25%. During this period, total U.S. goods exports increased 87.5%. The forecast assumes that exports at the industry level increased at the rate that prevailed in the 2002–2008 period (with few exceptions, explained in the notes and methodology appendix), and that imports in each sector increase at the rate that prevailed in the most recent 2014–2019 period (8.3%, in total, as shown in Table 2).14 Finally, assumed export growth in each sector is further reduced by 15.5% so as to achieve overall balance in goods trade in 2024. In other words, the model assumes that overall U.S. goods exports increase 64.6% between 2019 and 2024, as shown in the last column of Table 2.

Table 3 also reports each industry’s share of the overall import growth, export growth, and trade balance change between 2019 and 2024. In terms of net changes in the trade balance, 70.9% of the improvement in the goods trade balance (i.e, the decrease in the goods trade deficit) takes place in the manufacturing sector, 7.2% is in agricultural products, and 19.8% is in mining (oil and gas is a big contributor, alone responsible for 12.6% of the increase in goods trade). Within manufacturing, petroleum and coal products, and chemicals—both essentially “refined energy products”—are together responsible for 21.5% of the total improvement in the trade balance. Finally, 44.0% of the improvement in the trade balance occurs in durable goods industries, which support many good, high-wage jobs, as discussed in the next section.

Table 4 reports the industry breakdown of the $500 billion in spending for infrastructure, clean energy, and energy efficiency in 2024, as noted above, as well as the economic output generated by the $812.6 billion in respending induced by the $1.354 trillion in spending from the trade rebalancing and infrastructure and clean energy/energy efficiency investments. Spending allocations for infrastructure, clean energy, and energy efficiency are scaled to proposals outlined in Pollin and Chakraborty 2020. Overall, 32.5% of planned spending for infrastructure is for construction services, as shown in the addendum at the bottom of Table 4. Less than one quarter (22.8%) of infrastructure spending is for manufactured products. On the other hand, virtually all (91.6%) of clean energy and energy efficiency investments are for manufactured products.

Table 4

The respending allocations assigned to each industry in the last data column are based on personal consumption expenditure data from the Bureau of Labor Statistics input–output tables (BLS-EP 2020b).15 Respending is heavily weighted toward service industry purchases, and manufactured products account for just 12.4% of respending. These differences between the industry composition of investment spending and the industry composition of respending have important implications for the patterns of job creation in the model results, as discussed in the next section.

Job impacts by industry

Table 5 provides the industry breakdown of direct and indirect jobs supported by export promotion (rebalancing trade), infrastructure investments, and clean energy/energy efficiency investments.16 The last two data columns in the table report the total direct and indirect jobs from all three categories combined and the total jobs supported in each industry as a share of the overall total jobs supported (it excludes jobs from respending).17

Table 5

Overall, 6,895,200 jobs would be supported between 2019 and 2024 as a result of these three activities. More than one-third (36.4%) of the jobs supported would be in manufacturing, or 2,508,000 total jobs. In addition, 471,200 jobs (6.8% of the total) would be in construction. An overwhelming share (87.4%) of the 471,200 construction jobs supported are jobs supported by infrastructure investments (411,900).

Manufacturing and construction offer high wages with excellent benefits (Scott 2017b). Nearly half (43.2%) of the direct and indirect jobs supported by the programs outlined in this study would be in these high-wage industries (supporting a combined 2,979,200 jobs). Manufacturing and construction employed a total of 20,491,000 workers, or 13.4% of total nonfarm employment, in February 2020 (BLS 2020a). Thus, these programs, if enacted, would create a threefold increase in the rate at which the U.S. economy is generating good jobs for non-college-educated workers. This would help restructure the labor market toward more high-wage jobs for these workers.18 Competition for these workers also would help pull up wages for all workers with similar characteristics in other industries, by tightening the labor market for non-college-educated workers.

The addendum at the bottom of Table 5 illustrates some of the differences and relative strengths of these three proposals for rebuilding the economy. Nearly two-fifths (39.5%, or 1,386,400 jobs) of the jobs supported by rebalancing trade would be in manufacturing. Roughly one-fifth of jobs supported by infrastructure investment will be in construction. And among the three programs considered here, infrastructure investment supports the smallest share of manufacturing jobs (14.4%, or 298,800 jobs). Clean energy and energy efficiency investments would support 1,315,400 jobs, nearly two-thirds of which (62.6%, or 822,800 jobs) would be in manufacturing. This is an important result for those concerned that clean energy proposals will hurt employment. Clean energy proposals substitute capital, and especially manufactured goods, as inputs instead of energy; these proposals also substitute wages for profits—traditional energy industries such as oil are among the most profitable in the United States.19 To understand the potential benefits of clean energy job creation, consider that the coal mining industry in the United States employed only 50,400 workers, in total, in February 2020 (BLS 2020a). While targeted policies that help workers transition to new industries are clearly a necessary complement to these investment proposals, many of these workers displaced by shifting energy production easily could be absorbed by growing manufacturing industries in the United States if the clean energy proposal were implemented. Overall, 2.5 million manufacturing jobs would be created by these three proposals over the next four years, more than enough to absorb all workers displaced by reduced energy consumption.

A state-by-state breakdown of job creation

Rebalancing trade, rebuilding U.S. infrastructure, and investing in clean energy and energy efficiency would generate significant job growth in all 50 states and in the District of Columbia, as shown in Table 6 and the interactive map in Figure A. Job gains would range from 6.16 % of total employment (or 181,000 jobs supported) in Wisconsin down to 2.85% of employment (or 10,200 jobs supported) in Washington, D.C., as shown in Table 6, which ranks states by jobs supported, as a share of total state employment. In general, job growth would be concentrated in the manufacturing-intensive areas of the country in the upper Midwest and the South which have been hardest hit by globalization and outsourcing, and especially by growing imports from China (Scott and Mokhiber 2020). Certain energy-producing states (i.e., North Dakota, South Dakota, Wyoming, and Oklahoma) are also in the top 10 job-gaining states.

Table 6

Figure A

The model used in this study assumes that construction spending, which is prominent in the infrastructure proposal, will be proportional to current distributions of construction and manufacturing employment by state. Actual results could vary if infrastructure and clean energy spending are allocated based on need, and if spending programs are used to redress existing patterns of racial and gender discrimination. The past is not prologue, in these cases, despite the structure of the model revealed in Table 2. Policy can change the distribution of jobs shown.

Supplemental Table A at the end of this report provides total jobs supported per state ranked by the total number of jobs supported. Jobs supported are in general proportional to total employment, so the states with the largest populations (California, Texas, New York, Florida, and Illinois) make up the top five on this list. Supplemental Table B ranks states alphabetically, and reports the same results shown in Table 6.

Conclusion

Rebalancing trade by expanding exports, and expanding public investments in infrastructure, clean energy, and energy efficiency, are the keys to generating at least 6.9 million good jobs, rebuilding American manufacturing and the U.S. economy.

Acknowledgments

The author thanks Josh Bivens, Scott Boos, Riley Olson, Scott Paul, and Michael Wessel for comments, and Lora Engdahl for editing assistance. We also thank Robert Polin and Shouvik Chakraborter of the Political Economy Research Institute at the University of Massachusetts, Amherst, for additional details about their modeling assumptions. This research was made possible by support from the Alliance for American Manufacturing.

About the authors

Robert E. Scott joined the Economic Policy Institute in 1996 and is currently director of trade and manufacturing policy research. His areas of research include international economics, trade, and manufacturing policies and their impacts on working people in the United States and other countries, the economic impacts of foreign investment, and the macroeconomic effects of trade and capital flows. He has published widely in academic journals and the popular press, including the Journal of Policy Analysis and Management, the International Review of Applied Economics, and the Stanford Law and Policy Review, as well as the The Hill, Los Angeles Times, Morning Consult, Newsday, The New York Times, USA Today, The Baltimore Sun, and other newspapers. He also has provided economic commentary for a range of electronic media, including NPR, CNN, Bloomberg, and the BBC. He has a Ph.D. in economics from the University of California, Berkeley.

Zane Mokhiber joined EPI in 2016. As a data analyst, he supports the research of EPI’s economists on such topics as wages, labor markets, inequality, trade and manufacturing, and economic growth. Prior to joining EPI, Mokhiber worked for the Worker Institute at Cornell University as an undergraduate research fellow.

Daniel Perez is a research assistant at the Economic Policy Institute. He joined EPI in December 2019 and supports the work of EPI economists on trade, inequality, worker power, and more. As a research assistant, he compiles and analyzes economic data for media briefings, research reports, and policy proposals. Prior to joining EPI, Perez served as a research assistant for The University of California, Santa Cruz’s Income Dynamics Lab, studying development and political economy, and worked as programmatic assistant for ROC United, where he worked to improve labor market outcomes for low-wage and tipped workers. Perez also has worked in other industries, including food, wholesale, and education.

Appendix: Methodology

The trade, investment, and employment analyses in this report are based on a detailed, industry-based study of the relationships between changes in trade and investment flows and employment for each of approximately 205 individual industries of the U.S. economy, specially grouped into 44 custom sectors, and using the North American Industry Classification System (NAICS) with data obtained from the U.S. Census Bureau (2019) and the U.S. International Trade Commission (USITC 2020).

This model was developed to analyze the employment impacts of trade flows on the domestic economy by Scott and Mokhiber (2020). It is adapted and extended here to examine the impacts of other types of spending, including infrastructure, clean energy, and induced respending (personal consumption expenditures or PCE) and multiplier effects. The underlying input-output and employment requirements models used to study trade effects are perfectly well suited to the study of domestic investment changes as well.

The number of jobs supported or displaced by $1 million of exports, imports, or other spending for each of 205 different U.S. industries is estimated using a labor requirements model derived from an input–output table developed by the BLS-EP (2020a).20 This model includes both the direct effects of changes in output (for example, the number of jobs supported by $1 million worth of auto assembly output) and the indirect effects on industries that supply goods (for example, goods used in the manufacture of cars). So, in the auto industry for example, the indirect impacts include jobs in auto parts, steel, and rubber, as well as service industries such as accounting, finance, computer programming, and staffing and temporary help agencies that provide inputs to the motor vehicle manufacturing companies. This model estimates the labor content of trade or other spending using empirical estimates of labor content and goods flows between U.S. industries in a given base year (an input–output table for the year 2019 was used in this study) that were developed by the U.S. Department of Commerce and the BLS-EP. It is not a statistical survey of actual jobs gained or lost in individual companies, or the opening or closing of particular production facilities (Bronfenbrenner and Luce 2004 is one of the few studies based on news reports of individual plant closings).

Only nominal trade and expenditure data and nominal employment requirements tables are used in this analysis. Inflation and productivity growth were ignored, in the absence of complete price and productivity projections.

The steps followed to estimate the economic and employment impacts of investments in infrastructure, and in clean energy and energy efficiency, are similar to the steps followed to estimate the economic and employment impacts of trade.

Data requirements for trade and for investments

The text below follows the step-by-step process for developing the data for analyzing all three proposals, with Steps 1 through 3 applying only to trade flows.

Step 1. U.S. trade data are obtained from the U.S. International Trade Commission DataWeb (USITC 2020) in four-digit NAICS formats. General imports and total exports are downloaded for each year.

Step 2. Trade projections are developed based on actual market behavior in earlier periods, as described in the text, above.

Step 3. To conform to the BLS Employment Requirements tables (BLS-EP 2020a), trade data must be converted into the BLS industry classifications system. For NAICS-based data, there are 205 BLS industries. The data then are mapped from NAICS industries onto their respective BLS sectors.

Step 4. Data on expenditures for investments in infrastructure, clean energy, and energy efficiency improvements and for respending were collected as described in the text and in tables 1 and 4, above. Expenditure data were translated into four-digit NAICS industries and then mapped onto their respective BLS sectors.

Step 5. Nominal domestic employment requirements tables are downloaded from the BLS-EP (2020a). These matrices are input–output industry-by-industry tables that show the employment requirements for $1 million in outputs in nominal 2019 dollars. So, for industry i the aij entry is the employment indirectly supported in industry i by final sales in industry j and, where i=j, the employment directly supported.

Analysis of trade and investment impacts

Step 1. Job equivalents. For the trade analysis, BLS trade data are compiled into matrices. Let [T₂₀₁₉] be the 205×2 matrix made up of a column of imports and a column of exports for 2019. [T₂₀₂₄] is defined as the 205×2 matrix of 2024 trade estimates. Define [E₂₀₁₉] as the 205×205 matrix consisting of the nominal 2019 domestic employment requirements tables. To estimate the jobs supported or displaced by trade, perform the following matrix operations:

[J₂₀₁₉] = [T₂₀₁₉] × [E₂₀₁₉]

[J₂₀₂₄] = [T₂₀₂₄] × [E₂₀₁₉ ]

[J₂₀₁₉] is a 205×2 matrix of job displacement by imports and jobs supported by exports for each of 205 industries in 2019. Similarly, [J₂₀₂₄] is a 205×2 matrix of jobs displaced or supported by imports and exports (respectively) for each of 205 industries in 2024.

A similar analysis is performed for infrastructure, clean energy, and energy efficiency investments, and for respending (PCE) as described above. The investments are all assumed to result in net increases in jobs supported by domestic spending.

To estimate jobs supported/displaced over certain time periods, we perform the following operations:

[J_nx19-24] = [J₂₀₁₉] − [J₂₀₂₄]

Step 2. State-by-state analysis. For states, pooled (five-year) estimates of employment-by-industry data are obtained from the Census Bureau’s American Community Survey (ACS) data for the 2013–2017 period (U.S. Census Bureau 2019) and are mapped into 44 unique census industries and seven aggregated total and subtotals, for a total of 52 sectors (including scrap, not part of the census analysis) (Data Planet 2019).21

Previous reports examining employment impacts of trade flows (Kimball and Scott 2014; Scott and Mokhiber 2018) relied on single-year estimates, based on ACS 2011 data, of employment by industry, state, and congressional district. This model has been completely reestimated in this version of the report with the newer ACS five-year data referenced above. These data provide substantially better detail, and greatly improved accuracy, in the form of much lower levels of variance for employment estimates at every level of detail in the model. The new estimates also reflect congressional district boundaries for the 115th Congress for most districts in the country. Boundaries changed in only a few districts in Pennsylvania and Colorado between the 115th Congress and the current 116th Congress.22

We look at net jobs supported from 2019 to 2024, so from this point, we use [J_nx19-24]. In order to work with 44 sectors, we group the 205 BLS industries into a new matrix, defined as [Jnew_19-24], a 44×2 matrix of job support numbers.

Jobs supported by infrastructure and clean energy/energy efficiency investments are added to net jobs supported by trade for the state analysis and combined into the separate vectors shown in Table 6 and Supplemental Tables A and B.

We define [St_2013-2017] as the 44×51 matrix of state employment shares (with the addition of the District of Columbia) of employment in each industry calculated from the ACS five-year employment estimates. We calculate:

[Stj_nx19-24] = [St_2013-2017]T [Jnew_19-24]

where [Stj_nx19-24] is the 44×51 matrix of job displacement/support by state and by industry. To get state total jobs supported, we add up the subsectors in each state.

Jobs supported by infrastructure and clean energy investments are added to net jobs supported by trade for the state analysis, shown separately in Table 6 and Supplemental Tables A and B, and then combined into one final vector for the calculation of total jobs gained as a share of total state employment.

Supplemental Table A

Supplemental Table B

Endnotes

1. The plans examined in this report have long been needed, but would be especially effective at the present time, due to the depressed state of the U.S. labor market (BLS 2020b).

2. See text box, “Defining jobs: Supported vs. created vs. job years,” and discussion there of jobs supported versus job years.

3. The PERI group has published a number of detailed studies of the impacts of clean energy programs at the state, national, and global levels, including Green Growth (Pollin, Garrett-Peltier, Heintz, and Hendriks 2014), and Climate Crisis and the Global Green New Deal (Chomsky and Pollin 2020).

4. The year 2019 is chosen as the base period for this study because that is the last year for which we have complete trade data.

5. See Scott 2009, especially Figure A, for further review of the history of the Plaza Accord and currency realignment in the 2002–2008 period. See Bergsten and Gagnon 2012 for an analysis of the impacts of currency manipulation on the U.S. economy and global trade flows. There are several tools available to combat currency manipulation and offset dollar misalignment (Scott 2017a). One of the most effective and direct methods is to tax foreign investment. Recently, Sens. Tammy Baldwin (D-Wis.) and Josh Hawley (R-Mo.) introduced bipartisan legislation to address the twin problems of an overvalued dollar and growing trade imbalances. Their bill would empower the Federal Reserve to tax new foreign purchases of U.S. stocks, bonds, and other assets—which could return the dollar to a competitive, trade-balancing level (Hansen 2017; Scott 2019).

6. See Methodology Appendix for discussion of NAICs industries and trade data sources. Actual exports of energy products increased extremely rapidly between 2002 and 2008, from a very tiny base, including crude oil (which increased 395%) and refined petroleum products (which increased 632%). By 2019, exports of these products had increased very substantially, to $95.7 billion and $93.8 billion, respectively. Use of historical growth rates for these sectors would have overwhelmed the forecast. Therefore, the initial forecast is that exports of each of these products would double between 2019 and 2024, and then adjust downward by 15.5% in 2024, as described in the text.

7. Total U.S. goods imports increased only 6.0% between 2014 and 2019. Currency realignment will increase the prices of imports, limiting additional consumption of imported products to at most recent trend growth in imports. Note that imports increased rapidly in the 2002–2008 period due to currency manipulation by China and other Asian countries, and extensive unfair trade policies, which limited the decline of the U.S. trade deficit in that period. We assume in this forecast that the dollar falls against all major surplus currencies here, including the Chinese yuan, Japanese yen, Korean won, and the euro, and that fair-trade enforcement otherwise prevents and unwinds unfair import trade. (Authors’ analysis of USITC 2020).

8. The initial projection resulted in a 94.8% increase in total exports between 2019 and 2024, using the weighted average of actual 2002–2008 growth rates, and an 8.3% increase in imports, resulting in an initial projected surplus of $496.7 billion.

9. It should be noted that the 2019–2024 period is one year shorter than the 2002–2008 period mentioned above, so it is reasonable to assume that future export growth will be less than in the reference period.

10. The Sierra Club (2020) plan is detailed but is at a higher spending level and for a longer period of time than the plan considered here, which is based on a four-year, $2 trillion climate and infrastructure investment proposal.

11. The authors thanks Robert Pollin and Shouvik Chakraborty for additional details about model assumptions (Chakraborty 2020). The final version of that report also evaluates a proposed investment of $186 billion per year in agricultural and land restoration investments that are not included here. The program considered here includes a much smaller component of agricultural programs, for energy conservation, as noted below. Individual modeling elements were converted from the IMPLAN 546 modeling format to the Bureau of Labor Statistics formal modeling of 205 individual industries of the U.S. economy; this conversion was implemented using IMPLAN to NAICS crosswalks.

12. The actual level of respending achieved could be higher or lower than shown in Table 2 and elsewhere in this report. The actual size of the multiplier will depend on the level economic activity when the spending takes place. See the text box, “Defining jobs: Supported vs. created vs. job years,” for discussion of the role of labor market tightness or slack on overall job creation. See also Bivens (2014) for a review of the literature on economic multipliers.

13. Pollin and Chakraborty (2020, Tables 1b and 2b) estimate that $683.1 billion in infrastructure and clean energy spending would support a total of 9.3 million new jobs, including direct, indirect, and induced spending. Our report estimates that $500 billion in infrastructure and clean energy and energy efficiency could support a total of 6.34 million jobs (including respending, Table 2, above). Adjusting for the 36.6% higher spending levels in Pollin and Chakraborty relative to this report’s $500 billion spending package, overall projections shown in Table 2 are about 7.6% lower, in terms of jobs per billion dollars of spending, which is likely explained by small differences in multipliers (induced spending) in the two models. In addition, the BLS model used here is based on 2019 input–output tables, and the IMPLAN model used by Pollin and Chakraborty is based on 2018 input–output data. See the methodology appendix for further details.

14. The model is based on trade flows at the NAICS 4-digit level, which are aggregated into the 205-industry BLS model used for this study, as described in the appendix. These data are further aggregated into 52 sectors for presentation in Tables 2–4 (some of which with no data are omitted from Tables 2 and 3).

15. The personal consumer expenditures vector is one of the components of the Aggregate Final Demand data set that is included with the BLS input–output matrix files, as a component of “Nominal dollar input–output data for 1997–2019” (BLS-EP 2020b).

16. The table provides detailed information on jobs supported by industry and within industries. An additional fact not provided in the table but rather from unpublished analysis of the data is that within primary metals, 69,900 new jobs would be supported in the steel industry (NAICS 3311 and 3312).

17. Four industries show net jobs displaced by trade, and in three of those industries that translates into jobs displaced in the trade plus investments total.

18. Manufacturing and construction employ a substantially higher share of non-college-educated workers than other sectors of the economy. For example, in 2009–2011, 47.7% of manufacturing workers had a high school diploma or less education, compared with 37.6% of workers in all industries (Scott 2013, Table 1).

19. Profits are much lower in manufacturing industries, which produce 91.6% of products in this study. Hence, substitution of clean energy equipment for energy products will increase the labor share of energy expenditures.

20. The model includes 205 NAICS industries. The trade data include only goods trade. Goods trade data are available for 85 commodity-based industries, plus information (publishing and software, NAICS industry 51), waste and scrap, used or secondhand merchandise, and goods traded under special classification provisions (e.g., goods imported from and returned to Canada; small, unclassified shipments). Trade in scrap, used, and secondhand goods has no impact on employment in the BLS model. Some special classification provision goods are assigned to miscellaneous manufacturing. Most trade in the special classifications provisions is small package trade that enters duty free, and involves products that are not classified.

21. The U.S. Census Bureau uses its own table of definitions of industries. These are similar to NAICS-based industry definitions, but at a somewhat higher level of aggregation. For this study, we develop a crosswalk from NAICS to Census industries, and we use population estimates from the ACS for each cell in this matrix. The ACS data we obtain from the Census Bureau for this project includes 44 unique sectors, plus subtotals for manufacturing, and for total employment. Trade and job loss coefficients are estimated using data only for the 44 unique sectors, across states and congressional districts.

22. According to the U.S. Census Bureau, only Colorado and Pennsylvania had congressional district boundary changes for the 116th Congress.

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While U.S. Trade Representative Robert Lighthizer’s recent op-ed heralding an end to “the era of reflexive offshoring” highlights some positive steps forward by the USTR, much more needs to be done to bring supply chains home. It is not enough to—as the administration has done—set tariff policy by tweet, negotiate trade agreements that do not directly take on outsourcing across manufacturing and service sectors, and hope that corporations finally “see the light” and bring jobs home. Rather, returning jobs to America requires a robust, comprehensive strategy that coordinates policies in trade, currency valuation, investment, financing, energy, technology, tax, education, training, government procurement, and labor.

To start, this strategy would include the following:

• Insist that the Defense Department and other U.S. agencies cease their reflexive support for continued use of outside supply chains in Mexico and elsewhere and instead push for bringing work home.
• Ensure that “Made in the U.S.” in government procurement programs actually means that a product is manufactured by U.S. workers with U.S. supplies and materials.
• Require employment impact statements in government contract and award determinations in order to maximize U.S. job creation.
• Create a U.S. Manufacturing Investment Bank.
• Address currency misalignment.
• Eliminate tax incentives that encourage corporations to outsource production.

Insist that the Defense Department and other U.S. agencies push for bringing work home

The Trump administration could start to bring work home by scrutinizing its own departments, starting with the Pentagon. Several days ago, Pentagon officials acknowledged the dangers of relying on supply chains in other countries for defense products, especially in aviation and shipbuilding. But their response to that danger missed the point. Citing how the COVID-19 crisis has led to the closures of factories in Mexico that are critical to the defense industry, Undersecretary of Defense for Acquisition and Sustainment Ellen Lord said she would be asking the Mexican Foreign Affairs Minister to help reopen international suppliers there that provide parts for U.S. airframe production.

What is wrong with this picture? Instead of demanding that Mexico open its factories in the midst of COVID-19 to produce items for the United States, Pentagon officials should be demanding that U.S. companies move work back home. How can some officials reinforce the use of supply chains outside of the U.S. when over 36 million U.S. workers, many of them in manufacturing, are unemployed?

Also extremely troubling is the simple fact that many factories in Mexico cannot provide proper personal protective equipment for workers and forcing them back to work without needed safety measures jeopardizes lives. It’s bad enough that U.S. workers in certain industries are being asked to return to work without proper personal protective equipment, reliable testing and strict adherence to the Centers for Disease Control guidelines. U.S. government officials’ demands that Mexico reopen factories and subject unprotected workers to the dangers of COVID-19 are unconscionable.

It is no secret that U.S. companies have flocked to Mexico over the past 30 years. As I have previously written, Mexico now employs between 30,000 and 40,000 workers in just one industry alone, aerospace. Aerospace manufacturers promote Mexico’s low wages to draw business across the border. Analysts have commented that “Mexico’s proximity to the U.S. and its lower labor cost structure have drawn approximately 300 foreign manufacturers to areas in five Mexican states.” As one review of the aerospace industry noted, “The downside of this is that the country may be used increasingly for its cheap labor by profit-hungry companies from more established markets.” Mexico’s aerospace industry is now a major exporter to the U.S., as highlighted by the Pentagon’s announcement.

And it is not just aerospace manufacturing that has shifted supply chains to Mexico. In addition to medical supplies, other essential sectors are greatly impacted by supply chains in Mexico, including all sorts of manufacturing, electronics, communications (especially call centers), and food products.

Now is the time for all federal departments—starting with Defense—to insist that U.S. companies bring work home, especially work that is essential to our economy and national defense. The administration can start by using the Defense Production Act to ensure that the U.S. immediately step up production of essential items like desperately needed personal protection equipment and ventilators. There are hundreds of factories that have closed across the country that could be used for this important mission.

Ensure that “Made in the U.S.” in government procurement programs actually means that a product is manufactured by U.S. workers with U.S. supplies and materials

For most consumers, a U.S. product is one that is domestically manufactured at home with U.S. materials and supplies. They would be shocked to learn that our federal government considers a product to be domestically made even when a significant number of parts and components were produced in other countries. Although the government has adopted domestic content requirements in certain procurement programs, these content requirements can be as low as 51%. Moreover, methods for calculating domestic content are a mess. What factors do agencies include in determining content? Is the calculation limited to raw materials, production, assembly, and maintenance? Or can the calculation include intangible items that can be used to inflate domestic content—like the value of marketing, research, development, and intellectual property rights? How is the origin of components and subcomponents considered?

The administration should move quickly to make domestic content calculations effective and transparent. Domestic sourcing requirements for all government procurement programs (e.g., “Buy American” laws) and programs that support U.S. exports (e.g., the U.S. Export-Import Bank) should also be reviewed to ensure that the requirements are strong, taken seriously, and effectively implemented.

Further, waivers that allow exemptions from domestic procurement requirements should be greatly narrowed, including when exemptions are granted for the use of foreign-sourced goods that are in the “public interest,” not reasonably available in sufficient commercial quantities, or not available at a reasonable cost.

The Buy American requirements should also be equally rigorous with sectors like food products. Government commissaries and cafeterias should be using products made here at home. This includes items from sugar and flour to baked goods.

Require employment impact statements in government contract and award determinations in order to maximize U.S. job creation

The administration should adopt a simple, common-sense policy that directly links domestic employment with certain government activities. One way to accomplish this is to require detailed employment impact statements (EIS) as part of the decision-making process for government procurement contracts, assistance, grants, and awards. The results reflected by the EIS would be a significant factor in the final determination concerning the project or transaction under consideration. The EIS would contain information pertaining to employment that would be maintained, created, or lost if the program in question were approved.

To assure that employment impact statements and reliance upon them are fully and effectively implemented, federal agencies would need to submit annual reports summarizing the procedures used and the results. The reports would furnish the administration and Congress with valuable information about how government programs are supporting the creation and maintenance of jobs.

Create a U.S. Manufacturing Investment Bank

Similar to the concept of the U.S. Export-Import Bank (Ex-Im Bank), a new U.S. Manufacturing Investment Bank would provide financial support for the revitalization of the U.S. manufacturing sector. The U.S. Manufacturing Investment Bank would target large, medium, and small manufacturers that cannot obtain affordable credit on commercial terms. Financing would be in the form of loans at or below commercial rates or of a federal guarantee of a commercial loan. These loans would be paid back directly to the U.S. Treasury, similar to the procedures implemented by the Ex-Im Bank.

In order to receive financing, eligible companies would need to demonstrate a reasonable assurance of repayment within the terms of the agreement and agree to the following requirements:

• Loans will be used to domestically manufacture, assemble, and/or service goods, equipment, parts, and components.
• Materials used for manufacturing will be domestically produced or mined.
• Work will not be outsourced to other countries.

Also, companies that receive loans must not be found in violation of any federal labor and employment laws for one year prior to the inception of the loan and through its term.

Address currency misalignment

As detailed in EPI’s Policy Agenda, policymakers must focus their attention on making the dollar competitive. Cheap imports achieved through [foreign] currency undervaluation continue to make production in China and elsewhere attractive. Combined with addressing the effects of the strong dollar on trade imbalances, bringing supply chains home will require that policymakers take actions outlined in the EPI Policy Agenda:

• Engage in international negotiation to lead to a competitive dollar, as the U.S. did with the 1985 Plaza Accord.
• If negotiations fail, rely on the U.S. Treasury and the Federal Reserve to sell dollars in global markets to realign the dollar’s value against other currencies.
• Impose a tax on the purchases of dollar-denominated assets by foreign governments and investors.

Eliminate tax incentives that encourage corporations to outsource production

If the administration is serious about bringing jobs back home, it should support legislation that would remove tax incentives for corporations to create and maintain production overseas. Introduced last year by Sen. Sheldon Whitehouse and Rep. Lloyd Doggett, The No Tax Breaks for Outsourcing Act would go a long way toward removing these incentives. According to Whitehouse’s office, the measure would, among other things:

• Tax income from overseas subsidiaries at the same rate that applies to domestic income.
• Treat “foreign” corporations that are managed and controlled in the U.S. as domestic companies.
• Crack down on so called “inversions” by maintaining the U.S. tax treatment of merged companies that retain a majority of U.S. ownership.

While strong statements from some administration officials, like the USTR, about bringing jobs home are laudable, current policies will not achieve these much-needed results. With over 36 million people out of work and an unemployment rate which has reached Depression-era levels, Americans are in desperate need of a well-coordinated, comprehensive policy to stop the erosion of our nation’s industrial base.

Of course, changing the flow of supply chains back to the U.S. will not occur overnight. But we need to start somewhere and we need to start now. Never again should our highest officials in the Defense Department have to plead for help from another country to produce the essential equipment that should be produced here at home. Nor should our officials demand that another country force its workers to produce goods for the U.S. under unsafe conditions.