President Trump has a plan to revive the steel industry. He wants to mandate that oil and natural gas pipelines use only American-made steel. His Commerce Department is finalizing the plan right now.
No matter how well-intentioned, the president's plan would backfire — destroying more jobs than it creates.
American steel companies don't even make the right-size parts for most pipelines, and their products cost more than steel from abroad. Forcing pipeline companies to use domestic steel would raise prices and delay projects for years, leading to layoffs and lost job opportunities for tens of thousands of Americans.
Currently, oil and natural gas companies import more than three-quarters of the steel used in pipelines. They do so for the same reason America buys bananas from Honduras. American companies could technically grow bananas under glass in New York City, but they opt to get bananas from the most cost-efficient source and enjoy the savings.
The amount of steel we import is unlikely to change soon. Only 25 U.S. steel mills produce parts for domestic oil and natural gas pipelines. And certain pipelines need pipes so thick that the U.S. steel industry can't make them.
Mandating the use of domestic steel for pipelines would require steel manufacturers to retool their factories. The renovation and refitting costs could more than double the price of pipeline parts and slow production.
That would be disastrous for everyday Americans. Pipelines create tens of thousands of U.S. jobs. The Keystone XL pipeline project alone could put 40,000 Americans to work and generate more than $2 billion of income for local workers. Trump recently approved that pipeline without requiring builders to use U.S. steel.
History shows protectionist steel policies hurt American workers. In 2002, the George W. Bush administration imposed tariffs on imported steel. The resulting increase in steel prices spurred an economic slowdown that destroyed 200,000 jobs, more than the number of jobs supported by the entire steel industry.
Trade, of course, never has to be mandated. It's what happens when people are left alone to pursue the most economical means of satisfying their self-interest. When government intervenes and declares, "Sorry, we want to deprive you of your best options and make you spend more money than you would otherwise choose to," it forces costs up and actually destroys wealth.
Oil and natural gas pipelines don't just benefit workers. They also save American consumers money. A proposed pipeline project in Eastern Pennsylvania and New Jersey could lower consumer utility bills by almost $900 million in a single winter. Thanks in part to cost-saving pipelines, the typical American driver saves over $500 per year at the pump.
American reliance on domestic oil and natural gas is increasing. In June, demand for oil reached a 10-year high. But despite high demand, energy prices have remained low. That's because new pipelines have made it cheap for drillers to increase production and meet consumers' needs.
For instance, Trump approved the Dakota Access Pipeline in February. With a stroke of his pen, he saved oil and natural gas drillers in North Dakota about $540 million in shipping costs. The pipeline opened up new markets for these drillers, enabling them to increase production by 50 percent — and create many new jobs. Those savings also trickle down to consumers in the form of lower energy prices.
Impeding domestic pipeline projects would even endanger national security. Unable to produce and transport its own energy, America would depend or hostile regimes like Venezuela and Saudi Arabia. Today, America produces more oil than any other country — an impossible feat without pipelines to transport crude to refineries.
Two centuries ago, French economist and statesman Frederic Bastiat took down protectionist arguments in "The Candlemaker's Petition." In his essay, candlemakers protested that a "foreign manufacturer of light has such an advantage over us that he floods our domestic markets with his product. And he offers it at a fantastically low price."
That competitor turned out to be the sun, which provides free light in competition with the makers of candles. Bastiat wittily explained that it is in society's best interest to accept all the free sunlight it can get and use the resources that might otherwise go to candles to meet other needs. That lesson still applies today.
The president's desire to boost the U.S. steel industry sounds good on the surface — but it shouldn't come at the expense of America's economic and national security. Laying off American workers and asking the impossible of U.S. steel is no way to put "America First."