Global Business/Protectionism
Steeling Jobs
America's ailing mills want another bailout--with the cost falling on companies that use steel
BY DAREN FONDA
BRIDGET A. BARRETT FOR TIME Welded Together:
A steel frame for a DaimlerChrysler Jeep Liberty makes up only 3%
of its costs. But automakers are lobbying hard to keep steel
prices low
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Monday, Feb. 25, 2002
Three years ago, Bill Sopko Sr. made the biggest gamble of his business career. With the economy booming, Sopko, the owner of an automotive-parts plant in Euclid, Ohio, invested $6 million in the latest gear to manufacture a critical brake component for heavy trucks. With a new 3,000-ton stamping press, he would reduce costs from $14 per unit to $9. Recouping his investment, he knew, could take as long as 10 years. But with plenty of orders in the pipeline, Sopko figured he had made a shrewd move. What he didn't calculate was getting caught in a global steel war.
Late last year the U.S. International Trade Commission ruled that American steelmakers had suffered "serious injury" as a result of a surge in imports and, as a remedy, proposed trade restraints, including tariffs as high as 40% on foreign steel products. Big domestic steelmakers say they won't survive without protection from what they call a deluge of foreign steel. President Bush faces a deadline of March 6 to rule on the itc's proposed sanctions, which he is expected to approve. His decision will ripple through the global economy--affecting prices of everything from cars to office buildings, and jobs from Ohio to South Korea.
No one disputes that most of America's old, integrated mills--the ones that make steel from iron ore in huge blast furnaces--are ailing badly. In 1998, amid a financial crisis that dampened Asia's demand for steel, exports from that region flooded the U.S. and drove prices to 20-year lows. Thirty U.S. steelmakers have filed for bankruptcy protection in the past five years, including icons such as LTV and Bethlehem Steel. With a strong dollar still favoring imports and a global recession crimping demand, the U.S. firms staying afloat say their position is precarious. The most efficient and profitable American steelmakers--the so-called mini-mills that refine steel from scrap metal--stand to pick up market share from the dying dinosaurs. But even the mini-mills are now clamoring for trade protection.
That is not all the big steelmakers want. USX-U.S. Steel has asked Washington to waive antitrust law and let it merge with Bethlehem Steel, National Steel and other troubled companies. USX-U.S. Steel also wants the government to assume the unfunded pension and retiree-health-care obligations of its takeover targets--estimated at $13 billion over the actuarial lifetimes of retirees. At Bethlehem Steel--operating under Chapter 11 protection since October--13,000 workers now support benefits for 130,000 recipients. Much of the money, the steelmakers say, could come from revenues generated by tariffs on imported steel. "If we get tariff relief and legacy-cost relief, you're taking money from importers who caused injury and sending it to retirees," says Bethlehem's recently installed CEO, Robert Miller, who helped Chrysler win a government bailout in 1979.
What's good for big steel, though, is likely to spell trouble for the larger U.S. economy--and especially for workers, managers and shareholders of American companies that use steel. The metal is a major component in thousands of industrial and consumer products, from machine tools and office buildings to cars and cookware. Most of those products face tough competition from goods made in countries where steel is already cheaper than in the U.S.
Steel producers argue that job losses from higher U.S. steel prices would be minimal. But in a study commissioned by a steel users group, economists Laura Baughman and Joseph Francois concluded that if tariffs rose to 20.7% (a weighted-average figure), the resulting higher steel prices would cost 74,500 jobs in the wider U.S. economy. The number of steel-producing jobs that would be saved: 8,900--at a cost of $451,509 for each protected steelmaking job. Independent analysts agree that the net job loss could number in the tens of thousands. "No matter what Bush decides in terms of a trade remedy, he'll impose more costs than benefits," says Ben Goodrich, an economist with the Institute for International Economics in Washington.
It's also likely that import restraints would spark a wider trade war. U.S. imports of key steel products, such as hot-rolled sheet, actually declined from the end of 1998 through 2001, and under World Trade Organization rules, America's trading partners may be authorized to retaliate immediately if the U.S. imposes hefty tariffs or quotas. In a speech in London in December, Pascal Lamy, the European Union's chief trade negotiator, vowed that the E.U. would lodge a WTO complaint if the U.S. blocked steel imports.
In the European Union, 65% of the steel is now produced by just five firms, while employment in the industry dropped 33% in the 1990s. Led by giants such as Germany's ThyssenKrupp, the Dutch-Anglo venture Corus and the multinational conglomerate Arcelor, the E.U.'s mills are now among the world's least polluting and most productive. "Should restrictive trade measures be adopted, it still doesn't solve the problems of U.S. integrated producers," says Gordon Moffat of the European Confederation of Iron and Steel Industries.
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