Trump’s ‘order’ that all pipelines be made with U.S. steel is a classic fake-out

The president says all pipelines in the U.S. will be made with U.S. steel. That’s not going to happen.

President Donald Trump shows his signature on an executive order on the Keystone XL pipeline, Tuesday, Jan. 24, 2017. CREDIT: AP Photo/Evan Vucci
President Donald Trump shows his signature on an executive order on the Keystone XL pipeline, Tuesday, Jan. 24, 2017. CREDIT: AP Photo/Evan Vucci

“If they want a pipeline in the United States, they’re going to use pipe that’s made in the United States, do we agree?” — President Donald J. Trump, February 2017

Just four days after taking office, President Donald Trump issued a memorandum to the Secretary of Commerce calling on the agency to “develop a plan” for all new, retrofit, or expanded pipelines to be made with U.S. steel.

The memorandum built on one of Trump’s key campaign messages about buying American products and rebuilding the U.S. manufacturing sector, as well as on a specific campaign promise to “bring back steel.”

It also tempered some of the outrage over Trump’s reversal of the Obama administration’s rejection of the controversial Keystone XL pipeline, which has been criticized as “a foreign-owned pipeline, using foreign steel headed to the foreign export market.”

But the U.S. steel mandate won’t work. It’s nearly impossible to craft a legal version of the policy. The plan is opposed by Congress, and two of Trump’s cabinet members have financial incentives to use cheaper, foreign steel. Don’t blink, though. Look past Trump’s pro-U.S. steel rhetoric for the big reveal: More pipelines will be permitted across the country.

An order with exceptions

Trump should have been a magician, because he is endlessly skilled at the art of the misdirect. At a White House meeting for business leaders on February 23, Trump told U.S. Steel CEO Mario Longhi, “We approved, as you know, the Keystone pipeline and Dakota, but they have to buy, meaning steel, so I’ll say U.S. steel, but steel made in this country and pipelines made in this country.”

As it turns out, that’s not true.

“The Keystone XL pipeline is currently in the process of being constructed, so it does not count as a new, retrofitted, repaired, or expanded pipeline,” a White House spokeswoman clarified to Politico on March 2. Keystone’s developer, TransCanada, does not have to buy steel made in this country. Neither will the Dakota Access developer, although both projects are going forward.

Putting aside whether “under construction” is at odds with “new, retrofitted, repaired, or expanded,” it was pretty obvious from the get-go that the U.S. steel memorandum was never going to apply to Keystone XL. For starters, the Commerce Department has until late July to formulate the steel plan. But in the Keystone XL memo, issued the same day, Trump directed the State Department to reconsider TransCanada’s application within 60 days.

The presidential memorandum is aspirational, not binding. CREDIT: Federal Registrar
The presidential memorandum is aspirational, not binding. CREDIT: Federal Registrar

Even if Keystone XL had come after the Commerce plan was finalized, the U.S. steel requirement — again, rather obviously —will be limited “to the extent permitted by law.”

Like his proposed tariff on Mexican imports— which, as many analysts said, would have hurt the U.S. economy — Trump’s promise to give priority to the U.S. steel industry is more talk than truth. And like the proposed tariff, a U.S. steel mandate is likely impossible to enact.

Many experts think an overarching plan like the one Trump proposed, which would apply to a whole swath of industry, would not be legal. The World Trade Organization (WTO) allows domestic procurement rules for government projects — contracts for new government buildings, for instance, can require U.S.-sourced materials. Even those rules aren’t set in stone.

Crude oil (brown) and petroleum product (brown/yellow) pipelines crisscross the United States. CREDIT: U.S. Energy Information Administration
Crude oil (brown) and petroleum product (brown/yellow) pipelines crisscross the United States. CREDIT: U.S. Energy Information Administration

If the Commerce Department finds that it cannot direct the federal government to withhold permit approvals based on the sourcing of materials, the agency’s plan will say something along the lines of, “When possible, the U.S. government urges project developers to use U.S. product.”

And that would be that.

Another mechanism the Commerce Department could try — which Trump floated last year — relies on a 1960s trade caveat that allows the government to block imports “that threaten to weaken an industry vital to national security,” as Edward Alden, a senior fellow at the Council on Foreign Relations, wrote in an op-ed last year.

Beyond legality, another basic reason that the Buy American mandate will never take off is that killing projects is not good for business. It’s not certain that the U.S. steel industry could meet the requirements of building projects like Keystone XL. It would certainly increase the costs.

The steel industry is highly specialized. Not all manufacturers produce the same kind of steel, in the same formations. That means some of these projects — Keystone XL, for instance — wouldn’t pencil out under a Buy American mandate.

An administration with close ties to steel

Keep in mind that Trump’s new Commerce Secretary, Wilbur Ross, is a major investor and former board member of ArcelorMittal, a Luxembourg steel company that Ross helped build. Ross was an ArcelorMittal board member while he was drafting the Trump campaign’s economic plan on Trade, Regulatory, & Energy Policy Impacts. And not only is Ross’ company a “major supplier” for the Keystone XL pipeline, as the Guardian reported, it has an immense interest in the U.S. market. According to company documents, 13 percent of ArcelorMittal’s carbon steel coils business is in the United States.

Ross has since stepped down from the ArcelorMittal board and will reportedly divest from the company. But as Republican columnist Lachlan Markay noted last week in the Daily Beast, Ross’s financial ties are still troubling.

However [Ross] treats his ArcelorMittal investments going forward, those investments stood to gain from policies he authored for the Trump campaign at the time they were authored… Ross will oversee areas of economic policy that stand to affect ArcelorMittal’s bottom line, including infrastructure spending, trade restrictions, and even sanctions on Iran, where ArcelorMittal subsidiaries do business.

Another cabinet member, Secretary of State Rex Tillerson, former CEO of ExxonMobil, also stands to benefit from Keystone XL’s construction. ExxonMobil is invested in Canadian tar sands, which provides the heavy crude oil Keystone XL intends to transport. As such, “ExxonMobil stands to materially benefit from the approval of the pipeline granted by its former CEO Tillerson,” a Greenpeace policy brief says.

Tillerson’s financial disclosures indicate that nearly all of his wealth is tied up in stock holdings with ExxonMobil, where he worked for nearly three decades. During his confirmation hearing, the now-Secretary of State promised to recuse himself from issues related to Exxon. So far, it does not appear that he has done so in the case of Keystone XL.

That puts Trump’s Buy American policy squarely in opposition to the financial interests of two men who will play a role in shaping U.S. policy on pipelines.

In the meantime, the U.S. steel industry is fighting back Republican-led efforts in Congress to water down what “made in America” means for their business.

On the same day Politico reported that the Keystone project won’t use U.S. steel, a coalition of industry associations sent a letter to Trump and Congressional leaders urging them not to change rules that are already in place — the above-mentioned government procurement rules.

“The American steel and iron industries and their workers strongly oppose efforts to weaken Buy America by allowing imported steel that is finished in the United States to be used in taxpayer-funded infrastructure projects,” the groups wrote. If that’s on the table, it appears that expanding the Buy America program doesn’t have much backing on Capitol Hill.

Industry woes

The Buy America program isn’t the industry’s only problem. Boosting the domestic steel industry has been a Trump priority — and a U.S. priority — for some time. The industry has suffered in recent years, due in part to China’s overproduction, and for more than a decade, China and the United States have been sparring over China’s steel subsidies. Last summer, the Department of Commerce finalized anti-dumping duties on Chinese steel, but that finding is set to be challenged at the World Trade Organization.

Despite the industry’s recent slump, however, some 70 percent of steel used in the United States is domestically produced, so there is not that much room for government intervention to prop up the industry.

“Trade restrictions would probably help the steel industry a bit,” Council on Foreign Relations’ Alden told ThinkProgress. “But we’re not talking about a lot of jobs here.”

So what are we talking about?

It’s undoubtedly true that Trump sees trade policy as one of the biggest problems with the U.S. economy. He blames China for the diminishing manufacturing base in the United States, and he has been touting trade reform since before he was asking for Obama’s birth certificate.

“I think Trump’s positions on trade are genuinely held ones,” Alden said.

But transforming bluster into policy — or into jobs — is not a magic trick. It cannot be accomplished with a slight of hand or trompe l’oeil. Trump’s memorandum may garner headlines, but the only thing that has emerged as true is that investors in big, global businesses will benefit.

Trump’s fellow investor-class will make more money if projects are approved without any stipulations — and so will Trump. Keystone is not the final piece of this puzzle. There are dozens of pipeline projects that are still in the planning and permitting stages. Amid cries of “American steel,” many of those projects will be approved by the Trump administration, even if no steel mandate ever materializes.

Trump was — according to his most recent financial disclosures — invested in several companies that build oil and gas pipelines, including TransCanada, Energy Transfer Partners, which is constructing the Dakota Access Pipeline, and Enbridge, another major pipeline player. He has several investments in oil and gas companies. These connections mean that Trump’s business ties could, well, trump his desire to make everyone “Buy American.”

They have before. During the election, Trump was repeatedly criticized for using Chinese steel in his own development projects. “It’s cheaper,” his campaign explained. When push comes to shove, Trump has shown he will choose profit over American workers.

Of course, a story about business and the new administration wouldn’t be complete without a tie to Russia. According to DeSmogBlog, a Canadian outlet that covers fossil fuel companies, much of Keystone XL’s steel was manufactured by a Russian-owned company, Evraz.

DeSmog has uncovered that 40 percent of the steel created so far was manufactured in Canada by a subsidiary of Evraz, a company 31-percent owned by Russian oligarch Roman Abramovich, who is a close ally of Putin and a Trump family friend. Evraz has also actively lobbied against provisions which would mandate that Keystone XL’s steel be made in the U.S.

On the one hand, the fact that Trump moved forward with his memorandum to ensure the most U.S. steel possible is used for pipelines might indicate that he is not as beholden to Russian interests as some would like to believe. On the other hand, the memorandum is toothless. Who is really winning here?

Shortly after the election, Longhi, the CEO of U.S. Steel, made headlines by claiming the industry would bring back 10,000 jobs under Trump. Industry watchers — who were less optimistic than Longhi — suggested that the statement was a gambit to get in with the Trump administration.

If that was the case, it worked: Longhi was one of only 12 attendees at a January business roundtable at the White House, and was invited back again in February.

If he continues to stay on message — and ignores the facts — maybe U.S. Steel will keep its place at the Trump table. Just don’t bet it will be in the pipes.

Correction: This article originally stated that Tillerson said he would recuse himself from the Keystone XL permit application. He said he would recuse himself from issues related to Exxon, not specifically the Keystone decision.