Johnson Says He Would Short Steel Based on Trump Protectionism

Street just over near the Capitol within walking distance. Representatives of US Steel are speaking before the Trade Commission looking for a revival of an argument against an antitrust complaint having to do with dumping of steel by rival Chinese manufacturers. And here to tell us more is Gordon Johnson. He is managing director and the head of Alternative Energy as well as Metals and mining equipment research, and he joins us on the phone. A great great to have you

with us, A Gordon at Action Capital Management. I beg your pardon, um, you know, I was looking at the at the price movement today of U S steal. We got the stock up nearly four percent. Do they just have to like wave a flag every now and again and say, um dumping tariff and then you know, depending upon whose in power it moves the stock. Yeah, I mean that does indeed seem to be the case, and it seems like the Trump administration is definitely focused on China.

But I think people need to look at, uh the reality here. Uh the Obama administration h rained heavily down on China. In fact, they hit China with a number of very aggressive tariffs. And if you look at total Chinese imports as a percent of US STILL imports UM in six point one percent, seven point two percent, it

dropped all the way to two points. So the point is, even if you basically completely closed China out from directly importing still into the United States, is going to have a very modest, if any impact on the overall steel backdrop. And I think that the rhetoric are you know, comments coming out of the Trump administration UH an impact on

the markets. Um. You know, people have this very aggressive initial reaction, but it's just not the numbers just don't pan out well, and let's get to what US deal is actually doing. They filed a lawsuit against rival Chinese manufacturing UH companies, saying that they colluded to keep prices low to undercut American competitors. UH. They were filed this though under a statute covering unfair trade practices, which usually oversees domestic issues. I mean, does U S steal even

have standing? Is their international law that would bring Chinese manufacturing companies into this? I mean, is this lawsuit a no go basically? I mean it looks like it is. I mean, a lot of the things they've done recently, UM. I shouldn't say a lot of the things, but some of the things they've done recently seemed to be UM, pretty pretty aggressive UM and trying to benefit from uh what appears to be a pro UH protectionists. UH, you

know US administration. Look, at the end of the day, it seems like U S stills and this has been the case for a while. It seems like their strategy is effectively to benefit from protectionism, and that just doesn't work. We saw this UM in late nineting in the late nineties and the early two thousand's UH, when President George W. Bush implemented a Section two A one tariff, which essentially put taxes on every single still important for the United States.

Shortly thereafter, the European Union ruled this UM. UH that that action unfair. Uh and and then shortly thereafter, you know, there were some reactions by the European Union and the US pulled that back. Look, protectionism does not work because effectively the bulk of US still demand is in China, not US. The global still demand is in China. The US has just roughly seven percent of global still demand. And more importantly, these still manufacturers sell the people like

automakers and you know, appliance makers, etcetera. And those guys have to compete globally. So if you drive up the cost of domestic still, it's going to kill their customers and eventually kill them. So it just doesn't work. Well, Gordon, I just want to put the put the production in China in perspective, because China's steel capacity, global steel making capacity, I believe, is bigger than the United States, European Union, Japan,

and Russia. Yeah yeah, I mean, I mean that they account for sevent of all steel making growth as well. That's right, and you know it looks crazy. Issue um. In two thousand eight nine, China embarked upon a massive stimulus, and that stimulus was targeted primarily at building essentially offices and homes and that benefited the global steel community massively.

All these stocks went to the moon and it was driven by China, and as a result, you had a lot of capacity created in China, still capacity to meet this boom in demand. Clearly there's a lot of empty

and ghost cities in China. It was inefficient capital, but nonetheless that created a lot of capacity, and the problem is that capacity is still existent, but the demand is falling so um It's like, you know, when everything was working in the favor of the U S still mills, they weren't complaining about what China was doing, which was creating a lot of this capacity. But now that things are,

you know, turning around, now they're starting to complain. The reality is this, there's about eighty eight countries that ships still into the United States without a section to a one tariff going after one individual country. We've already killed China. I mean again, there are imports have trapped from like two million tons a year to roughly seven hundred and eighty nine thousand tons of year two thousand, fifteen to sixteen, six point one percent of US imports at two point

six We've already killed them. But they're just gonna ship there still into another country. Uh, and eventually it will probably find its way into the United States, and I think that there's no way around that. And you know, these U. S still mills continue to focus on China,

and I think China's already it's a dead horse. Well, Gordon, I think it isn't interesting though, and it is telling that U. S. Steal is reviving some of these complaints at this point and asking the major steel trade organization, the US International Trade Commission in Washington, to support its

claims about collusion by Chinese manufacturers. Do you think that they are going to get a warm reception by politicians in Washington currently, or do you think that the geopolitical backdrop, including North Korea, has changed the calculus for President Trump and his advisors and that they will not take this attempt by U. S. Steal seriously. Look, there's two things all highlight. I think there's no doubt that the issues in North Korea have changed Trump's view um and stance

on China. Clearly, in his um while campaigning, he said he was going to label them a currency manipulator. He's pulled that back. But let's look at the second dynamic we just had an O c TG oil Country tubular good ruling UM, and that ruling came out with respect.

It wasn't Chinese, but it was on South Korean UM essentially oil country tubular goods UH STILL producers UM that service that sector rather and the overall result when the result came out, the U. S Still stocks were battered because the market was expecting a thirty to thirty five percent tariff because Navarro essentially sent a letter to the Department of Commerce and the tariff came out at roughly for most guys, but the biggest guy was they dropped

the tariff from four percent to two percent. So the reality is, if you look at the rhetoric, he's pulled it back and if you look at the most recent decision, it was not in favor of the U. S Still mills. So you know, we would be shorting the stocks actually on UH strength around UH you know, Trump protectionism, etcetera. Because I think that his desire for China to help solve the North Korean problem is much bigger than the rhetoric given in the campaign season, and I think that

we're seeing that play out in reality. And just to note right, I mean, you've got US steal down for the year. Right, it's down about a little bit more than ten percent, right, right, I mean it's up big today on this rhetoric. But um, you know you just had you just you are, I just reported earnings. You are as a big equipment rental company here in the US of their business in the US eight percent in Canada, and they just dropped their expectation, uh for growth in

the U S. What was it. I think it was two four before now they're getting to I think two point four percent. And in in Canaday they were looking for four percent. This is industrial growth and they took it down the negative point three percent. So I think, you know, the optimism on Trump, I think reality is starting to set in and I think that you know, as earnings come out, I think that two one earnings

for still guys are gonna be good. But I think as some of the earnings come out for industrial guys, I think there's just some disappointment ahead. Gordon Johnson, thank you so much for joining us. Gorton Johnson as Managing Director and head of Alternative Energy, Medals and Mining and Equipment Research at Axiomic Capital Management in New York. This is Bloombergh. We talk a lot about President Trump's infrastructure

spending plan. He talked about a one trillion dollar program that he was going to implement to fix our roads and bridges and tunnel. Somebody with pretty good insight into what that plan might look like is David Compton. He's chief executive officer of Old Dominion freight Line, which is based in Thomasville, North Carolina, and it just celebrated its twenty fifth year on the NASDACT. David, thank you so much for joining us. Thank you for having me on

with you today. So I wanted to start with the infrastructure spending plan because I know that you were co chair. You are the co chair of the American Trucking Association's Infrastructure Task Force, and you have met with President Trump.

Can you give us some insight into how feasible the infrastructure spending plan that he was talking about is and kind of where it is right now, well as we understand it now, the the Trump administration is working on their infrastructure plan and hope to have um something out into Congress by the end of May. That's the latest we hear. You know, as far as the total infrastructure

you know of one trillion. Uh. It's it's it's a little bit hard for me to address all of it because I honestly don't believe that that trucking and transportation roads and bridges will will get uh um but perhaps maybe a third of that um that excuse me, kind of frog in my throat, But that's that's basically where we where we are on that uh. But the uh, you know, the cost of under investment in our highways

and bridges is absolutely huge. Congestion on the interstate systems alone are costing the trucking industry nearly uh fifty billion dollars, and it's estimated over one hundred billion for all motorists. Automobile repairs due to potholes are costing the average motorists over five hundred dollars per year per motorists, for a

grand total of a hundred and twelve billion. Roadside crashes UM are causing due to you know, antiquated designs and poor insurance and exit ramps or anyone who's been in traffic understands how how it's sort of challenged US roads are. But David, do you think that we really are going to see uh material change or material construction in the next three years that could potentially even support your business.

I certainly hope so. Our Infrastructure Task Force, which is made up of eleven CEO s from from small truck lines all the way with less than a hundred trucks up to the nation's largest truck lines UH, is working with the Trump administrate and UH leaders in Congress, both the Senate and the House side UH to try to shape an infrastructure bill that addresses the most critical problems of the trucking industry and provides for the most immediate

and sustainable financing solutions. And we think we've got a pretty good a pretty good plan or roadmap to be able to come up with the money that's needed UH to accomplish this. All right, Mr Congan, I'm wondering if I could just attack this this topic in just a slightly different way, because I every now and again I'm on the road and I see one of your thirty thousand tractor trailers all across the country, and they have the Major League Baseball UH, you know logo on on

on the side. You move the teams of Major League Baseball. It's like, uh, you know, moving chessboard or something. I mean, because you know, you move them from spring training back to the right. I mean, I'm this is something that you're this is detail and I mean, my goodness moving is it just such a stressful thing for anybody? Imagine doing this to the level that you guys at old

Dominion Freight do that. What are do you feel that you're being heard by the right people to fix some of these I mean, no one is four potholes right. No one says okay, no, no, no, we love pottle. No one ever says that. So is there are there some things that you feel that you're being heard by the right people in the right place at the right time.

Considering that we that you have Donald Trump as president that will help fix some of these very basic things that you've just described, and that obviously you're in a better position to tell to explain what's going on than than you know, someone just reading a paper. I believe we are in an excellent position to be heard. The meeting that we had with President Trump Vice President Pence, Just what's that like? Can you shed some can you just us what's it like to even be there? What

does it feel like? Well? It was it was an exciting day it was. It was actually monumental. It was the first time in the history of the American Trucking Association for a t A to have two trucks on the lawn at the White House, represented by eleven UH top CEOs from our industry and twelve of our top truck drivers representing the America's road team, and the ability to meet the President and Vice President opened the door

for further discussions. Obviously, the day that we were there was the day that the Health health Care Repeal and Replaced bill was supposed to be voted on, and and that was the top of mind for the for President

Trump that particular day. But we have had subsequent we being the truck the A t A, UH President Chris Spear, UH, the Senior Vice President, Bill Sullivan, and others in leadership at A t A have had some meaningful discussions with UH, some of Trump's advisors and we are what specifically would you like to have happened or do you believe would be helpful to their mission to improve the infrastructure? What

what can people do? Who here you speak and UH, well here's here and all the people that are into baseball because you're you're you're moving those baseball teams. Well, the baseball teams are are important for us, uh, but but not as important as the uh ninety thousand shippers that uh that we have UM giving us revenue. But right, your customers, Yeah, our customers. Baseball is very small part

of it. But here's the deal. The annual cost of under investment in in in our infrastructure is costing motors over fourteen hundred dollars per year. And what we are proposed using, UH, what we're proposing UH is a build America infrastructure fee to be added at the to the rack cost per gallon of just twenty cents and and have this thing index to fuel economy and inflation. Twenty cents a gallon is really not very much. You recall when we were all paying uh four and five dollars

a gallon for gas. UH. Twenty cents a gallon only represents an annual cost of roughly eighty dollars per motorists to address a four hundred dollar per motorists problem. To me, that is a good return on investment. And this infrastructure

fee at the rack. I don't know if you know what I rack is, but there are thirteen hundred active UH terminals fuel racks across the country owned by only two fifty five owners, and they collect and pay the thanks for we gotta leave it there, David Congdon, I'm sorry, the chief executive of Old Dominion freight Line. We want to take a moment to let you know about something

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extension on the Chrome Store to try it out. Learn more at Bloomberg dot com. Slash lens Well corrosion. Corrosion is a two point two trillion dollar problem worldwide, and our next guest is trying to solve it. Christina Lamancy is the president and the chief executive and the co founder and a physicist and just happens to be in charge of Modu Metal, based in Seattle, but she joins us here in our studio, Christina, thank you very much

for being here. Um. Corrosion, I guess we could say rust is a problem that is never really going to go away because of the just the nature of certain types of chemical and metal reactions, unless, of course, I guess we call modu metal. Tell us what you're doing to fight this battle? Absolutely, so, we are UM, first of all, trying to address this huge problem that today represents about four point one percent of the gross domestic

product of the United States. So we spend a lot of money and a lot of energy addressing this challenge of corrosion, and we think we can reduce that impact on our economy. We're doing it by introducing an entirely new class of materials into the marketplace. That class of materials, UH is what we call nano laminated alloys. They're basically like metallic plywood, so they're layered materials, but in our case,

the layers are on the nanometer scale. UM, and maybe even more profoundly impactful is that we're we're having in order to bring these materials to market, to revolutionize the manufacturing process for metals as well. So we have a process that doesn't use heat anymore. We're actually using electricity as the input form of energy to manufacture metals directly. So before we get into the specifics I'm wondering so far.

I mean, the company has been around for a couple of years and this technology has been around for a couple of years. How has the demand grown by industrial companies? Well, we when we first started out with mode metal, it was just a concept, so we were really just trying to figure out how to bring this this technology from a science into really a manufacturing process. Now we're working with with major oil and gas companies to bring it into very large scale market applications. So the market has

really embraced the technology. And we talk about the cost of corrosion. It's something that impacts a number of major industries. So oil and gas is just one example. Infrastructure construction, I mean, transportation, you name it. The pain is there for a lot of major industries. So it's been it has been embraced across the board. Uh, in terms of its applications. Well, I also just want to congratulate you,

Christina lamos Ny. Uh. You are a finalist for the Edison Awards, So good luck with that, I know you're here in New York. You've been named the finalist for for that. Can you use let's say the Coastguard as an example. Obviously they must deal as most ship owners must deal with corrosion and rust. Tell us about using modu metal technology for the Coastguard. That's such a great example. In fact, we've done some work with the Coastguard. We've

deployed technology with them. As as you mentioned, the Coast Guard operates in a very corrosive environment. So they they're typically operating in marine environments where they're salt water, oftentimes high temperature. So on the coast of of let's say North Carolina, Florida, things like that, um or you have accelerated corrosion because of heat and um and so corrosion

is degrading the fleet. Even even as they're operating and building new structures, they're having to deal with the degradation of the old. We've actually done some work with the Coast Guard on something as simple as connectors fasteners like you know, bolts. It turns out that's a that's a critical point of a failure for for some of these

these structures. And so basically what we've done in in some cases we actually just coat conventional steals with our nano layered alloys and we can extend the life as much as tend to. We've demonstrated thirty times increase in performance at an equivalent cost to like a conventional zinc. So it's a dramatic difference in terms of the longevity of that product in a field, the safety factor associated with that connector, and we basically are keeping cost at parity.

So talking about that cost, I mean, how much would it cost to nano laminate say, all the bolts in a ship, and uh, how how do you how exactly do you nano laminate something? Yeah, the way to think about it, I think is it we're introducing a new structure, so it's the nano lamination. It's um to kind of

geek out on the science a little bit. We're kind of we're galvanically coupling to similar metals when we make these layered alloys, and we're controlling that galvanic couple and that's what's extending the life of the product in a corrosive environment. We're doing it though with the same basic raw materials, So from a cost driver standpoint, we really have the same basic costs as a conventional let's say,

hot dip galvanized process. We're just fundamentally changing the structure and that's resulting in a huge impact in terms of performance. Are planning on taking the public company public right now we're private and UH and we're really growing the business to try to bring the product into the market in a very very big way. But where are you getting

financing from? So we do UM. We do a lot of work with within the oil and gas sector, as I mentioned, And the fun part for us is that a lot of our customers have actually joined us as partners UM. So today we're jointly owned by Chevron, Conico, Phillips BP, all of whom were customers and then they became partners in the venture. We're also jointly owned by the founders FUN out of Silicon Valley, and so we just have a great team of partners that have joined

us in this venture. Christina Lamosney, thank you so much for joining us. Really a fascinating developments president and chief executive officer and co founder of Madu Metal, which is based in Seattle, but she is here with us in our Bloomberg eleven three oh studio, and she gave us business cards that are made out of nano laminated metal. Pretty cool him, I think I think I need some metal. There you go. That was the sound of it. Well, Republicans have come up with a replacement to the Dad

Frank Act of two thousand and ten. It is going to be aired in a hearing later this month. I want to bringing Nathan Dean, who's a government an analyst for Bloomberg Intelligence, is going to tell us what's in this replacement to the Dodd Frank Act before we get there, Nathan, is this thing dead on arrival or does this thing have legs? So it's dead arrival? When when you think about it, when it's becoming law, it will pass the House, It should pass the House. It should pass the House

by August. You will see a lot of headlines of talking about this will pass. But it's dead on arrival in the Senate. This this is the Republican kitchen sink bill. There are just too many provisions in here to get bipartisans support in the Senate. And because the filibuster still exists, you know, there's there's the this bill really doesn't have any chance over there in this Senate. Okay, So given the fact that it's probably did on arrival in the Senate,

should we care about it? There are provisions in this thing that we should care about. It's a starting point, it's a negotiations so uh, leaving. A lot of this bill is designed about this teen percent leverage ratio banks need to go from you know, around six and a half to ten percent for the big banks. That could cost him around four hundred twenty billion for the eight largest. But there are other provisions in this bill that i'd look at, you know, look at how they're going to

change the stress testing process. Uh, look how they're going to make relief for smaller and community sized banks. But a lot of the controversial provisions in here, repealing the vocal rule, changing the CFBB, uh, repealing the Durban Amendment, which would cost the banks. You know, it did cost the banks billions of dollars and interchange fees. You know,

those things are just too controversial. They're not going to pass Elizabeth More and they're not going to pass the other Democrats, and so I think it's more importantly to see what's going to come out of the Senate in their review, and we're expecting that sometime the next couple of months. The Senate has a of course, the Banking Committee, and Senator Mike Creepo, he's the Republican from Idaho, is

the chairman. Can you give us some insight into his thinking and then maybe kind of reference a previous bill that was introduced by the former Banking chairman, UH, Senator Richard Shelby, a Republican from Alabama. Yeah, so you know, the Senate right now is conducting a review of dot Frank. They actually went out to the industry and he said,

send us comments. And this was bipartisan effort, both Mike Creepo and Senator Sherried Brown, the ranking member from Ohio, and the bank comments and the industry comments have been piling in. Goldman Sachs, for example, just submitted their comments. Bloomberg News did an article on it, and it talked about changing the stress test, changing the calculation of a

leverage ratio. So a lot of this stuff I think could generate bipartisans support, But really what happens in the Senate we expect them to put together their own bill. You know, you mentioned Senator Richard Shelby, his big push last year was changing the city threshold. He wanted the city threshold to go from fifty billion to five billion. Senator Mike Crepo he wants that changed as well. Is probably too high. You know that five billion would would allow P and C and US Bank, for example, to

should their shed their Ciffy designation. To be clear, Siffy is significantly important financial institution, correct, and if you're labeled to Ciffy means you get a lot more capital in liquidity requirements and then you have to go through the stress test. So you know, whether that that threshold ends up a tune in fifty billion or it moves to a case by case designation. You know, we do expect the Senate because this is one of Senator Creepo's key things that he wants to work on. We do think

that Ciffy threshold is going to be in there. So, Nathan, as you were saying, this is sort of a kitchen sink effort by Republican Congressman h. But the interesting thing is banks are not too excited about this bill. It's called the Financial Choice Act. It would replace the Dodd Frank Act, which set out to prevent another bank driven financial crisis like the one that we saw in two

thousand and eight. Why aren't big banks excitedly for two reasons. One, you know, like we mentioned going to the ten percent leverage ratio, that's gonna increase capital requirements for large spanks. You know, Bi's credited Animal Sternal Cocuna did analysis where it's four and twenty billion for JP Morgan. That's billion alone.

It's probably not something they want to do. Secondly, they probably understand that this bill is dead on arrival, and so why waste the political capital fighting for full repeal of the vocal rule when you know it's not gonna happen. You know, you hear a lot of comments coming from Jamie Diamond and other bankers saying, you know, we just need to tweak the vocal rule and we need to play around with the market making exemption. You know, but in spirit, you know, they say they're okay with it.

So I think the banks are waiting to see what comes from the Senate. You know. One thing to keep in mind, you know, Chairman Henseling he's term limited at the end of this term, so he's got two years to essentially put something out there, and if not he's gonna have to move off of the chairmanship. So, you know, we still don't think dot frank is gonna be a year one issue. I think you'll see something come out from the Senate later this year, but I still think

dot frank will be a two year issue. So if this is not a year one she I mean, are there specific deadlines that they have to meet in order to get the ball rolling on this? So no, there's no specific deadlines. I think that, you know, one thing that we are telling our clients is watch out for the debt ceiling debates and the government shutdown debates later this year, not the April one, but maybe in September,

because that's the time that's ripe for amendments. You know, back in two thousand fourteen, Republicans inserted this amendment that repealed the swaps pushout provision. They did it three days before government shut down. They sent it up to the White House, and they told President Barack Obama sign it or the government's going to be shut down. And President Obama did sign it. So this is this tactic of

putting an amendment out there. You know, if I wanted to repeal the vocal rule for example, maybe I submit it right before the debt ceiling is about to hit and see what happens. So we're just telling clients to be very careful about those deadlines, probably in September August time frame. But in terms of just repealing dot frank, this can go on to two thou eighteen. There's no

really no no deadline there, all right. So if there if there's no deadline, just quickly, Nathan Um, why are the Republicans even bothering to do this to keep it in the new cycle. I think that, you know, they need to show that they're doing something. You know, this is there's been a lot of work done on repealing dot frank. They've this has been going back to two thousand ten. There's been over two fifty bills that have passed the House that have said something. So I think

this is to keep the ball rolling. And you know, if they can move on with infrastructure and tax reform and healthcare, then you know, I think you'll have the pieces in place. All right. I want to thank you very much for giving us all the information. Nathan Dean is government analysts for Bloomberg Intelligence. You're joining us from our Bloomberg Studios in Washington, and you can follow Nathan Dean on Twitter at Nathan Dean d C. Thanks for

listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm on Twitter at Pam Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio