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.