The Trump Administration Just Subsidized Chinese Steel

Tax credits for metallurgical coal mark the latest weakening of the U.S. critical mineral strategy

By Peter Cook

Citing threats to national security, the Trump administration in February issued a 25% tariff on steel to curb excessive imports ultimately caused by Chinese overproduction. Following the tariff, the One Big Beautiful Bill Act granted a 2.5% production tax credit for metallurgical coal—an input in the steelmaking process. The Department of Energy justified federal support for metallurgical coal based on the anticipation of increased demand driven by reinvigorated domestic steel output. But, because the U.S. is a net-exporter of metallurgical coal, the Trump administration’s tax credit effectively subsidizes foreign steel producers, like China, who purchases a sixth of U.S. metallurgical coal exports, without giving any significant benefit to U.S. supply chains.

The steel tariffs and metallurgical coal tax credit come alongside other tariffs on copper, aluminum, and graphite, targeting what the Trump administration sees as strategic materials at risk of Chinese dumping practices. At the same time, the One Big Beautiful Bill Act phased out the 45X Advanced Manufacturing Production Credit for critical minerals. Phasing out the tax credits for critical minerals only weakened the U.S.’s ability to secure its most vulnerable mineral supply chains, many of which are dominated by China.

These actions collectively indicate an increasingly confused approach by the Trump administration to address the risks that China poses to U.S. supply chains. Abandoning critical mineral tax credits pushes the U.S. further from a coordinated strategy informed by risk factors like single points of failure or net import reliance which the the Department of the Interior assesses when designating critical minerals. The shotgun approach employed by the Trump administration only risks wasting limited federal resources on an arbitrary list of pet commodities that are often non-issues. The taxpayer-funded metallurgical coal blunder serves as a prime example. Production tax credits for critical minerals would do more to secure the U.S. against disruptive Chinese trade practices than for metallurgical coal which the U.S. could easily support in more cost effective ways.

What is metallurgical coal?

Metallurgical coal is an ingredient in steel and other metal alloys, (though the tax credit only specifies steel production). It should not be confused with thermal coal, which power plants burn to generate electricity. Some metallurgical coals possess properties suitable for the production of coke, which blast furnaces use to make pig iron, a feedstock for steelmaking. This technique comprised 28% of U.S. steel production in 2024. The remaining 72% of steel production came from electric arc furnaces which use anthracite coal to help control the carbon content of steel.

The U.S. produced roughly 66 million tons of coking coal across 163 different mines in 2023, exporting around 75% to foreign markets. This output makes the U.S. the second largest exporter of coking coal in the world, accounting for 14% of the global export market. In fact, the U.S. has maintained a net exporter status of coking coal every year since 1980. The share of production that U.S. companies export has steadily increased over the last few decades likely due to decreased use of blast furnaces in U.S. steel production.

Meanwhile, the U.S. produced roughly 3 million tons of anthracite across 41 mines in 2023, exporting roughly 25%. The U.S. has maintained a net exporter status of anthracite for all but 7 years since 1980 despite steady adoption of electric arc furnaces in the U.S. steel fleet. This output ranks the U.S. as the 8th largest anthracite exporter in the world, accounting for 2% of global exports. The robust portfolio of both types of metallurgical coal suggests that the U.S. is hardly import-reliant or vulnerable to supply chain disruptions.

Should the U.S. subsidize metallurgical coal?

The Trump administration’s goal for the metallurgical coal tax credit is to meet the additional amounts of metallurgical coal demanded by the steel sector when it increases production to achieve a capacity utilization rate of 80%, which steel facilities see as necessary to remain economically competitive. However, the U.S. has maintained a net exporter status of metallurgical coal despite the U.S. steel fleet often surpassing 80% capacity utilization over the last decade.

The Department of Energy posed an additional optimal scenario where the U.S. achieves an 85% capacity utilization rate by producing an additional 20 million tons of steel each year. This would annually require roughly an additional 5 million tons of coal for coke used in blast furnaces, an 8% increase from 2023, and 200,000 tons of anthracite used in electric arc furnaces, a 7% increase. Even under this more aggressive scenario, the additional demand would still leave the U.S. as a net exporter of both types of metallurgical coal.

And while capacity utilization rates are not a metric of import reliance, for the United States to achieve self-sufficiency in steel production would require less metallurgical coal. Over the past few years, U.S. steel production hovered close to total U.S. steel consumption, boasting a low net import reliance of 13 percent in 2023. Achieving self-sufficiency in steel production would require only an additional 12 million tons of steel each year, significantly less than the product of increasing capacity utilization to 85 percent.

While increasing steel industry capacity utilization rates or reducing U.S. imports of foreign steel may arguably be valuable policy goals, a production tax credit for metallurgical coal is an unnecessary, and even detrimental, strategy. The U.S. already produces significantly more metallurgical coal than is needed for increasing domestic steel production. As a result, the One Big Beautiful Act’s metallurgical coal tax credit will end up subsidizing steel production for the many countries that import U.S. metallurgical coal, including China, India, and Japan—who already produce more steel than the U.S.

In total, the U.S. exported 56,856,291 short tons of metallurgical coal in 2024.Data taken from the U.S. Energy Information Administration Coal Data Browser.

Does metallurgical coal warrant any federal support?

Metallurgical coal clearly poses value to modern society as an ingredient for producing ubiquitous steel alloys used in everything from building materials to automobiles. Alternatives to coke in steelmaking, like hydrogen, or new approaches to steelmaking, like molten oxide electrolysis, are promising, but will likely take years of further development before seeing initial commercial viability, ensuring the need for metallurgical coal for the foreseeable future. The tax credit, however, will cost the U.S. roughly $190 million a year assuming a production cost of $110 per ton. Meanwhile, the U.S. could pursue more prudent and cost effective approaches to support metallurgical coal.

Least of all, the U.S. should preserve access to portions of federal land suitable for mining metallurgical coal. Growing ambitions to displace coal power plants have encouraged bans on federal coal leases with the latest attempts occurring under the Biden and Obama administrations. Future attempts to ban coal tracts may not specify thermal coal used for power generation and thus needlessly lock up land with metallurgical coal reserves. Therefore, the U.S. should protect access to federal land specifically with metallurgical coal to avoid the possibility of future complications as energy policy debates continue to target coal power.

Proper management of federal land that contains metallurgical coal should also include regular reserve assessments. Currently, the Department of Energy does not report reserves for metallurgical coal specifically and the U.S. Geological Survey has only conducted sporadic assessments. Access to current information on reserves will allow land management agencies to better foresee future supply shortages. In such a case, the federal government could aid the private sector in expanding the domestic reserve base through publicly funded exploration programs such as the Earth Mapping Resource Initiative operated by the U.S. Geological Survey. Metallurgical coal is currently produced almost exclusively in the Appalachia region. So, state and federal exploration programs could absorb part of the risk and learning curve in trying to expand production beyond these historical districts. At $75 million a year, the Earth Mapping Resource Initiative costs half of the metallurgical coal subsidies and could easily expand reserves of both metallurgical coal and critical minerals through shared exploration techniques. Its funding, however, will drastically reduce as appropriations from the Inflation Reduction Act expire in 2026

The U.S. may ultimately benefit the most in the long term by funding research that reduces the amount of metallurgical coal consumed when making steel. Here, breakthrough innovations that improve the material efficiency of steel facilities would avoid perpetual subsidies and decouple the U.S. steel sector from future depletion of domestic metallurgical coal reserves. Meanwhile, investments in direct reduced iron and molten oxide electrolysis ironmaking facilities would increase U.S. capacity for producing virgin steel in electric arc furnaces using domestic iron ore, as electric arc furnaces otherwise rely on scrap steel and primarily produce recycled steel. Note, however, that while these advancements may help reduce dependencies of the U.S. steel sector on metallurgical coal, they would also benefit foreign steel producers should the U.S. continue to mine and export metallurgical coal at similar levels.

Final verdict: the federal government could support metallurgical coal while prioritizing critical mineral dollars elsewhere

The funds for metallurgical coal production tax credits would arguably provide the U.S. with greater strategic value if applied to any official critical mineral with promising domestic reserves, in particular those that China dominates global production.

The U.S., for instance, has multiple mines in the permitting pipeline which will constitute the first domestic sources of graphite since the 1950s. Graphite holds clear economic and strategic importance for battery and energy storage technologies, advanced materials, and key industrial applications. Meanwhile, the graphite market globally confronts a virtual monopoly with China as the world’s overwhelmingly leading producer. A production tax credit for graphite could help buffer the learning curve for U.S. graphite mine and processing projects while they catch up and gain expertise.

Alternatively, the U.S. can offer grants for projects precisely where critical mineral supply chains need them most. Federal funding can greatly improve the security of domestic supply chains by helping bring even just a single facility online. The Mountain Pass rare earth mine in California received two grants in 2020 and 2022 totaling ~$45 million from the Department of Defense to expand the operation from just a mine to a complete processing supply chain. Instead of spending $180 million per year to subsidize metallurgical coal, the federal government could help bring online multiple critical mineral facilities.

Metallurgical coal’s widespread use in steel and alloy manufacturing warrants forward looking, strategic thinking. A production tax credit, however, is simply not necessary—especially given the subsidization effects benefitting overseas steel producers. Preserving access to federal land that contains metallurgical coal, expanding domestic reserves through concerted mineral exploration campaigns, and researching improvements in the technical capabilities of US steel manufacturers represent forms of federal support that can address actual barriers for metallurgical coal production all more cost effectively than a production tax credit.

Critical minerals represent a much more worthy target for subsidization. Critical mineral supply chains by definition pose supply chain disruption risks to the U.S. economy and strategic industrial sectors. This is not to mention the fact that critical minerals constitute essential inputs in emerging, advanced technologies. Compared to broad economic ambitions for the U.S. steel sector, success in critical mineral policy can come even with just a single facility that completes a domestic supply chain. Given how much the U.S. could do to this end with $190 million a year, a metallurgical coal production tax credit clearly misallocates funding.