Cleveland-Cliffs, Tariffs and Stock Buybacks

The steel maker plows tariff-padded profits into buying its own shares. Paging Sherrod Brown

WSJ editorial. 

"Ohio Sen. Sherrod Brown supported the Inflation Reduction Act’s new excise tax on corporate stock buybacks. He’s also lobbied for tariffs to protect domestic steel makers from foreign competition. So we wonder what he thinks of the decision by Ohio-based steel makes Cleveland-Cliffs to plow its tariff-padded profits into share buybacks.

Cleveland-Cliffs’s stock jumped 7% Tuesday after CEO Lourenco Goncalves announced plans to “put a stronger focus on aggressive share buybacks.” He says it’s a good time to buy the company’s shares, which he thinks are undervalued despite a rich price-earnings ratio of 26.

Perhaps the CEO doesn’t believe investors are properly valuing tariffs and the subsidies for domestic steel in the 2021 infrastructure bill and Inflation Reduction Act. Federally funded public works must be built with U.S. steel, and green energy developers get a 10% bonus tax credit if they use domestic steel.

President Biden has kept the 25% Trump tariff on foreign steel. And Cleveland-Cliffs, the United Steelworkers union and Mr. Brown last year lobbied for more tariffs on tin-mill steel. In September the Commerce Department slapped duties of 122.5% on Chinese tin and lower margins on imports from Germany (6.9%), Canada (5.3%) and South Korea (2.7%).

Cleveland-Cliffs and

U.S. Steel

are the only two major U.S. producers of tin-mill and specialized steel used in electric-vehicle motors, so the tariffs give them an effective duopoly. This is why auto makers opposed Cleveland-Cliffs’s bid last year to buy U.S. Steel, which would have given the Ohio company tremendous pricing power.

Mr. Goncalves is unhappy that U.S. Steel accepted a better offer from Japanese steel maker Nippon. During a call with investment analysts on Tuesday, the CEO claimed U.S. Steel’s board “was hell bent to sell to a foreign entity” and “their goal was to break the back of the United Steelworkers,” which supported Cleveland-Cliffs’ bid.

He also suggested that Nippon’s acquisition could be torpedoed by the Committee on Foreign Investment in the United States over national security. Is Mr. Goncalves trying to goad the Administration into blocking the deal? He wouldn’t be the only one. Mr. Brown has also lobbied against it.

Share buybacks are fine with us, and they help with the efficient allocation of capital. But the Cleveland-Cliffs buybacks betray the conceit by protectionists in both parties that tariffs are all about U.S. manufacturing and jobs. They’re about lifting profits for some firms and shareholders over others."