Insights

The Steel Industry Is Shaping the U.S. Presidential Election —
Low-Carbon Steel May Hold the Answer

ㅣTaehan Kim, COO of KoSIFㅣ

“With electric arc furnaces accounting for 70% of production, the U.S. is well positioned to compete in low-carbon steel.”

“Regardless of who wins the election, the steel industry is likely to shift from price-based competition toward low-carbon competitiveness.”

Former President Donald Trump selected J.D. Vance, a 39-year-old senator from Ohio best known for his bestselling memoir Hillbilly Elegy, as his running mate.

The term “hillbilly” is often used disparagingly to describe low-income white communities living around the Appalachian Mountains in the central United States. Vance’s nomination is widely seen as a strategic move to win support in the Rust Belt, one of the key battleground regions in the U.S. presidential election.

     Winning the Rust Belt: A Formula for Electoral Victory

The U.S. presidential election is an indirect election in which voters choose members of the Electoral College rather than the president directly. In most states, the candidate who receives even one more vote than their opponent wins all the electoral votes allocated to that state. The candidate who secures a majority of electoral votes wins the presidency.

In the 2016 presidential election, Trump lost the national popular vote to Hillary Clinton by 2.1 percentage points. Yet he secured 306 electoral votes, defeating Clinton, who won 232.

Strong support from low-income white workers in the Rust Belt states of Pennsylvania, with 20 electoral votes at the time, Ohio with 18, Michigan with 16, and Wisconsin with 10 was widely recognized as a decisive factor in Trump’s victory.

The Rust Belt was once the industrial heartland of the United States, built around steel, coal, and textiles. Today, the term refers to the declining industrial regions of the Northeast and Midwest, where factories and machinery have fallen into disuse.

Once a reliably Democratic region, it has become a collection of swing states that frequently shift their support between parties from one presidential election to another.

The Rust Belt is again expected to play a decisive role in the election, and both Republicans and Democrats are competing intensely for its voters.

The Republicans selected Vance, who has strong ties to the region. The Democrats, meanwhile, chose Minnesota Governor Tim Walz as their vice-presidential candidate. As a middle-aged white man from a state bordering the Rust Belt, with experience as both a teacher and a member of the military, Walz has also been viewed as well suited to appeal to working-class voters in the region.

     Higher Tariffs as a Core Rust Belt Campaign Pledge

In 2016, many white working-class voters in the Rust Belt supported Trump’s protectionist and anti-immigration agenda. Their choice reflected a widespread belief that globalization and free trade had weakened American manufacturing and eliminated local jobs.

The selection of a running mate is ultimately secondary. The central question is how each party plans to restore manufacturing competitiveness and employment in the region.

Both parties are placing protectionism at the center of their election strategies.

Trump has combined a strongly anti-China position with a pledge to impose tariffs of more than 60 percent on foreign steel if elected.

The Democratic Party has responded with its own proposal to raise tariffs on Chinese steel by as much as threefold, up to 25 percent, while strengthening its ties with labor unions representing workers in the steel and automobile industries.

     Tariffs Are a Short-Term Measure — Low-Carbon Steel Is the Key to Restoring U.S. Competitiveness

Both parties are competing to propose higher tariffs, but few would seriously believe that tariffs alone can restore the U.S. steel industry to its former strength.

Tariff increases are politically popular, but they are ultimately a short-term response to deeper structural problems. Media reports have already warned that implementing the proposed tariffs could reignite inflation just as price pressures have begun to stabilize.

Even setting inflation aside, it is doubtful that tariffs alone can restore the competitiveness of U.S. manufacturing, which faces relatively high labor costs and concerns over workforce skills.

To rebuild its competitiveness, U.S. manufacturing must make use of its areas of comparative advantage. In the steel industry, the answer may be relatively straightforward: low-carbon production.

There are two main methods of producing steel.

The first uses electric arc furnaces to melt and refine scrap steel. The second uses blast furnaces and basic oxygen furnaces to remove oxygen from iron ore through coal-based reduction, generally using coke, before melting and refining the material.

Steel is one of the most carbon-intensive industries. Greenhouse gases are generated both in producing the electricity used in electric arc furnaces and when coal reacts with oxygen during blast-furnace production.

Producing low-carbon steel therefore requires either replacing the electricity used in electric arc furnaces with renewable electricity or using green hydrogen—produced with renewable energy—to reduce iron ore instead of coke, followed by melting the resulting material in an electric furnace. This latter process is commonly known as hydrogen-based direct reduced iron or hydrogen-reduction steelmaking.

Both pathways require electric furnaces and renewable electricity.

     China Lacks Electric Furnaces, Korea and Japan Lack Renewable Energy, While the U.S. Has Both

Global crude steel production reached approximately 1.85 billion tonnes in 2023.

China produced well over half of the total, exceeding 1 billion tonnes. It was followed by India with approximately 140 million tonnes, Japan with 87 million tonnes, the United States with 81 million tonnes, Russia with 76 million tonnes, and Korea with 66 million tonnes.

In terms of scale and unit costs, it is difficult for the United States to compete directly with Chinese steel.

The picture changes significantly, however, when competition is viewed through the lens of low-carbon production.

Electric arc furnaces, which are essential to low-carbon steel production, accounted for approximately 70 percent of U.S. steel production in 2021. This was far higher than China’s share of around 10 percent, Korea’s 32 percent, and Japan’s 25 percent.

China, which expanded blast-furnace-based steelmaking capacity relatively recently, also faces substantial stranded-cost risks. Its heavy investment in existing facilities may limit the speed at which it can replace them with electric furnaces. This gives the United States an additional competitive advantage.

As the growth of RE100 has demonstrated, the United States is also one of the easiest markets in which companies can procure renewable electricity through power purchase agreements and other mechanisms.

China is rapidly increasing renewable energy at the national level, although direct procurement by companies remains more difficult. Compared with Japan and Korea, however, the United States has a clear advantage in corporate access to renewable electricity.

     Korea’s Steel Industry Must Accelerate Its Low-Carbon Transition

Low-carbon steel is an area in which the United States could build competitiveness relatively quickly if it chooses to do so.

Regardless of who wins the presidential election, the United States has strong political and economic incentives to shift the basis of steel-industry competition from price to carbon intensity.

For Korea, which has already faced intense competition from low-cost Chinese steel, this change in the competitive framework presents both a new risk and a potential opportunity.

Discussion of low-carbon steel, once relatively active, has recently lost momentum. Yet steel is a foundational material for virtually every manufacturing industry.

Unless Korea intends to abandon its steel industry, it must accelerate the low-carbon transition and strengthen the policies and investment needed to support it—not only as a response to climate change, but as a matter of industrial survival.