Brazil To Kentucky: How Tariffs Could Affect The Coal Industry
This story has been updated.
Add another export to the growing list of American products other countries could tax because of tariffs: met coal.
Metallurgical coal — or “met coal” — is low-ash, low-sulfur coal that’s used to produce coke, an essential fuel for steel-making.
Demand for met coal is tied to the demand for steel. It’s also an American export and a symbol President Donald Trump used often on the campaign trail to demonstrate how he would “Make America great again.”
Trump signed proclamations on Thursday applying a 25 percent tax on steel and a 10 percent tax on aluminum imports with exclusions set aside for Canada and Mexico. The tariffs will take effect March 23.
Met coal could be joining other American products like blue jeans, Florida oranges and bourbon as a potential casualty of the tariffs Trump ordered on foreign steel and aluminum.
Last week, Brazil reminded U.S. officials that it’s the biggest buyer of American met coal – about $1 billion worth last year – in a statementexpressing concerns over the tariffs.
Latin America’s largest economy imported nearly 5.2 million tons of U.S. met coal through September of last year – about 1.3 million more than the next highest consumer, Japan, according to the U.S. Energy Information Administration.
Brazil also said it would not rule out retaliating against proposed tariffs. Similarly, a European Union trade leader has threatened to impose tariffs on U.S.-made products like steel, cars, orange juice and Kentucky bourbon.
Coal Attack 'Symbolic'
The thinking goes that tariffs on Kentucky bourbon might be a political pain point for Senate Majority Leader Mitch McConnell, and it could be the same with coal for President Trump, said Peter Marsters, a research analyst with the Rhodium Group, an independent research group that specializes in issues including energy.
It wouldn’t be the first time a country has used coal as a political bargaining chip against the U.S., Marsters said. Last May, Canada threatened to ban shipments of coal over a lumber dispute.
“I think there is a big symbolic story here. Trump has kind of tied his story to coal and coal miners,” Marsters said. “There’s as much symbolic value in going after U.S. coal exports, if not more than the economic value.”
Kentucky, Pennsylvania, Virginia and West Virginia are among U.S. states that mine the specialized coal used in steel manufacturing.
Met coal only makes up a small percentage of all the coal mined in Kentucky, but it’s played a larger role in keeping the coal industry afloat amid industry declines, Marsters said.
If tariffs weaken the dollar, they could make U.S. exports cheaper and in turn bolster the met coal industry, which exports 75 percent of its products outside the country, Marsters said.
But if Brazil’s steel industry sells less of its products in America because of the tariffs, that could hurt American demand for met coal in Brazil, said Brian Lego, research assistant professor with West Virginia University.
Alternatively, Brazil could just stop buying U.S. met coal as retaliation for the tariffs and purchase it from other countries like Australia or Colombia, he said.
“That’s the outcome created by the retaliatory responses to one country assessing import duties on a given product like steel,” Lego said.
Of course, it is also possible that steel tariffs could have a positive effect on the met coal industry domestically. If the demand for U.S. steel increases, so too could the demand for met coal.
But that would depend on U.S. steel companies expanding capacity enough to offset the global export demand, Lego said.
“It’s not that easy to reroute your supply network if you are an auto manufacturer or some other major steel-using industry. So you see where the skepticism over any touted benefits to tariffs would exist, and that also doesn’t speak to the issue of potentially forcing domestic users of steel to pay higher prices than they currently do,” Lego said.