President Trump’s decision on Thursday to risk setting off a global trade war by imposing stiff taxes on imported steel and aluminum might seem to have little to do with Hawaii, but consider companies like Island Recycling.

Every month, the 60-employee firm in Kapolei ships off 200 containers full of recycled goods, including iron and aluminum scrap metal, to places like Taiwan, Malaysia and China, where smelters process the metals for resale as raw material.

“All of this has to go somewhere, and we don’t want it to go to the landfill,” said Jim Nutter, Island Recycling’s owner and president. “Plus, there’s a lot of value to these products.”

Pile of shredded steel that comes out of the shredding machine. This shredded steel is then loaded into containers and shipping to different places.
Scrap metal exports, like iron and aluminum from Island Recycling, generated $47 million in income in Hawaii last year. Cory Lum/Civil Beat

So much value, in fact, that scrap metals were among Hawaii’s most valuable exports in 2017—worth more than cash crops like coffee, cocoa, mac nuts and papaya combined.

Iron, aluminum and copper scraps raked in $47 million last year, compared with $37 million for Hawaii’s top agriculture exports, according to the U.S. Census Bureau. For 2014-17, scrap metal exports totaled $186 million, the Census Bureau says.

So what do Trump’s tariff’s mean for this industry?

“The overall view is it’s probably not going to change a lot in the near future,” said Nutter, because the tariffs apply to imports.

Island Recycling workers move steel scrap with shredder machine at left. After the scrap is shredded into bits called shredded steel, its then loaded into containers for shipping to different countries.
Island Recycling workers move steel scrap with a shredder machine. After the scrap is shredded, it’s loaded into containers for shipping to smelters in Asia. Cory Lum/Civil Beat

The Trump administration has said that steel is essential to U.S. national security, a central component to transportation and military equipment and infrastructure like power grids and water systems.

A January report by the Commerce Department found that the nation’s heavy reliance on imported steel weakened the domestic steel industry and thus poses a risk to the economy and national security.

Although China produces a relatively small amount of the steel imported into the U.S., it produces nearly half of the world’s steel, and other countries have accused China of dumping steel at artificially low prices to drive out competitors and gain an even greater share of the market.

The tariffs, which are essentially taxes, tack 25 percent onto the price of imported steel and 10 percent onto imported aluminum. That’s expected to hurt states with big manufacturing industries, like Texas, which imported $8.3 billion in steel and aluminum in 2017.

But not necessarily Hawaii. According to a Brookings Institution analysis of Census data, Hawaii ranks last among the 50 states in terms of steel and aluminum imports. The state imported just $2.8 million in the metals in 2017. That amounted to about 0.1 percent of Hawaii’s imports.

Broader Economic Implications?

But the big question is whether the tariffs could prompt a trade war, which would make it harder for the U.S. to sell goods overseas, including scrap metals.

According to the U.S. Department of Commerce’s International Trade Administration, the U.S. is the world’s largest steel importer, bringing in 26.9 million metric tons in the first three quarters of 2017, according to the latest available report.

Most of this steel comes from Canada, Brazil, South Korea, Mexico and Russia, the Commerce Department reports. Those countries accounted for 57 percent of imports to the U.S.  Already, trading partners like the European Union have said they will retaliate by taxing a range of U.S.-made goods, including T-shirts, bed linens, tobacco, bourbon and motorcycles. What if other allies in the Americas and Asia follow suit?

Imports from 10 countries make up the vast majority of steel imports into the U.S. That question, among others, has caused many U.S. business leaders to sharply criticize the tariffs. Last week, Gary Cohn resigned as  Trump’s top economic adviser after expressing concerns about the tariffs. On Wednesday, the U.S. Chamber of Commerce decried the tariffs in a statement.

“We won’t drive the economy to over 3 percent growth or continue to create jobs if we go down this path,” said the chamber’s president, Thomas Donohue. “We urge the administration to take this risk seriously and specifically to refrain from imposing new worldwide tariffs on steel and aluminum.”

“These new tariffs would directly harm American manufacturers, provoke widespread retaliation from our trading partners, and leave virtually untouched the true problem of Chinese steel and aluminum overcapacity,” he said.

Lori Abe, a spokeswoman for the Hawaii Chamber of Commerce, declined to comment on how the tariffs could affect Hawaii. But Paul Brewbaker, a long-time Hawaii economist who is the principle of the consulting firm TZ Economics, said nothing good would come from imposing big taxes on global commodities. The only winners, he said, might be a relatively small number of U.S. industry workers.

Economist Paul Brewbaker says the metals tariffs are not likely to benefit the global economy. Nathan Eagle/Civil Beat

“There’s no way globally that everyone is better off,” Brewbaker said. “It’s got to be globally worse than it was before. It never nets out positive.”

“A trade war’s definitely not in our interest,” said Bruce Iverson, director of marketing and development with Oahu’s Reynolds Recycling. Although Reynolds primarily ships aluminum cans to mainland smelters, it is more likely to send aluminum scrap overseas. A trade war that increased prices of U.S. scrap aluminum in overseas markets would certainly have an impact on Hawaii recyclers, Iverson said.

“Anything that’s going to affect our price is going to affect our business,” he said.

Beyond the potential lost income, Brewbaker notes, there’s an environmental risk: If overseas customers aren’t willing to pay a good price for scrap metal, then the Hawaii companies won’t have a financial incentive to ship what amounts to garbage away from the islands. That might be more important than lost income.

“No matter how small it is in dollar value,” Brewbaker said of the scrap metal, “it’s a problem if you can’t get rid of it.”

It’s already getting tougher to sell scrap metal, especially to mainland smelters, said Camellia Young, finance manager at Ace Recycling in Kalihi. In 2013-14, a ton of ferrous metal fetched $200-$250, she said. Now, customers pay only about $15 per ton, she said.

“I have been watching, and I have been thinking about it because I am very concerned,” Young said. “Unfortunately, they decided to go ahead with the tariff.”

Still, much of the concerns about trade wars and the broader effects of the tariffs are speculation for now. Island Recycling’s Nutter said he has spoken to a steel dealer in Taiwan and for now is fairly certain Hawaii’s scrap businesses won’t be affected.

“It doesn’t concern me as much as you might think,” he said.

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