The American steel industry is getting hammered, and not in a good way (as in good old American-made Kentucky Bourbon). Steel companies are laying off, and closing plants due to low-cost foreign imports.
Steel companies are getting hammered by low-priced imports. Currency manipulation and terrible trade policies, combined with lack of enforcement and cutbacks in US infrastructure maintenance and modernization are the culprits. To make things worse, foreign steel companies are just pricing in fines expected from any (good luck with that) trade-violation enforcement that might come along as “a cost of doing business.”
The Pittsburgh Tribune-Review explains the problem, in “Stop foreign dumping, U.S. Steel CEO Longhi tells Congress”:
The domestic steel industry is being flooded with subsidized imports that threaten to shut down mills, lay off workers and put companies out of business, the CEO of U.S. Steel Corp. told lawmakers Thursday in Washington.
Mario Longhi, testifying before the Congressional Steel Caucus, said the industry is facing a “torrent of steel imports” that are unfairly subsidized by foreign governments and that undercut American-produced steel.
“The last time we were at these levels, nearly half of American steel companies disappeared,” Longhi said, according to his prepared remarks.
“Today, across the country, once again, mills are idled,” he said. “Plants continue to be shut down. American workers are laid off.”
Longhi called for Congress to more strongly enforce trade laws and to bolster standards for determining if companies have been hurt by foreign dumping.
The Chicago Tribune reports what they told Congress this week, in “Struggling steel industry asks Congress for help”:
CEOs for the country’s largest steel companies told the Congressional Steel Caucus Thursday that the government needs to take a three-pronged approach to save the industry from illegal trade practices — improve its trade policies, invest in the workforce and finance improvements to the nation’s infrastructure.
… The leaders described an influx of steel imports that are taking up an increasingly larger percentage of the market, causing industry layoffs in Northwest Indiana and across the country.
They said today’s imports China, Turkey and South Korea have surpassed the amount dumped here in the late 1990s that resulted in the bankruptcies of major steel players, including Bethlehem, Inland and LTV steel companies, all of which had mills in Northwest Indiana.
The US has a problem maintaining its infrastructure, never mind modernizing it, because some people believe “government spending” is bad. Maintaining infrastructure means buying steel — and fortunately our laws still say that taxpayer dollars spent on infrastructure must purchase American-made steel and other supplies. (Not that upcoming trade agreements like the Trans-Pacific Partnership will get rid of this, helping kill off the steel and other American-based industries.) But we cut back, and this has meant a cutback in purchases of steel.
We have a lot of catching up to do. The Americans Society of Civil Engineers’ (ASCE) most recent Infrastructure Report Card gives our country’s infrastructure a D+, and estimates we need to spend $3.6 trillion by 2020 just to catch up. The report states:
We know that investing in infrastructure is essential to support healthy, vibrant communities. Infrastructure is also critical for long-term economic growth, increasing GDP, employment, household income, and exports. The reverse is also true – without prioritizing our nation’s infrastructure needs, deteriorating conditions can become a drag on the economy.
This also means jobs. Jobs have been lost because we do not maintain our infrastructure, but millions of jobs would be gained if we did. Mario Longhi, president and chief executive officer of U.S. Steel Corp, said “$114 billion a year spent on infrastructure improvements would provide for 2.74 million jobs.” And that’s only a third of what the ASCE says is needed just to catch up.
Currency And Trade Violations
In “Message to Congress: Illegal Dumping Puts Steel Jobs At Risk” at the Manufacture This blog, Elizabeth Brotherton-Bunch explains how part of the problem is our trade-violation enforcement regime:
Thousands of good-paying steel jobs already have been lost and 150,000 more are at risk because of unprecedented levels of foreign steel dumping by countries such as China, steel industry representatives told Members of Congress on Thursday.
At the annual State of Steel hearing, chief executives from the country’s leading steel companies told Members of the Congressional Steel Caucus that the U.S. government needs to get serious about enforcing its trade laws in order to save steel jobs, if not the entire U.S. steel industry. United Steelworkers International Vice President Tom Conway echoed those concerns, noting that current remedies for addressing unfair trade practices simply aren’t working.
The Commerce Department and the International Trade Commission found significant steel dumping by countries such as South Korea in 2014, for example, eventually issuing tariffs on Oil Country Tubular Goods (OCTG). But getting to that conclusion took a long time — and workers and companies suffered during the process.
How bad is the problem? “Foreign steel imports increased by 36 percent from 2013 to 2014. As a result, American steel mills are running at just 69 percent of their capacity,” John Ferriola, chairman and president of the Nucor Corporation, testified.
A big part of this problem is our trade policies. The Economic Policy Institute’s Robert E. Scott recently explained how our trade policies are costing jobs and hurting American industries, in “Globalization Lowers the Wages of U.S. Workers”:
Unfair trade deals have lowered the wages of U.S. workers by displacing jobs and weakening the bargaining position of low- and middle-wage workers.
… The issue is simple: Although increased exports support U.S. jobs, increased imports cost U.S. jobs. Thus, it is trade balances—the net of exports and imports—that determine the number of jobs created or displaced by trade agreements. Rather than reducing our too-high trade deficit, past trade agreements have actually been followed by larger U.S. trade deficits.
Another reason US steel and other companies are having so much trouble is that goods from other countries cost much less due to currency rates. A “strong” currency means that it has a high price, which means goods from that country cost more in international markets. A “weak” currency means goods sold in that currency cost less. Exporters like steel companies and other manufacturers want to be able to sell more of their goods in other countries. So they like their country’s currency to be “weak.” But investors (i.e. Wall Street) want to be able to buy up companies in other countries. So they like “strong” currencies. Wall Street holds the upper hand, so American currency is currently very strong. (“Strong US Dollar Is A ‘Good Thing,’ Treasury Secretary Jack Lew Says.” Jack Lew is a former COO of Citigroup.)
Some countries manipulate their currencies to make their goods cost less than goods made in countries with “strong” currencies. This is a trade violation that is harming American-based manufacturers and costing as many as 5.8 million jobs. But “investor” forces in the US (Wall Street) resist cracking down on this currency manipulation.
In “How to Fight Currency Manipulation,” former IMF Chief Economist Simon Johnson makes the case that rules to prevent currency manipulation must be added to the upcoming Trans-Pacific Partnership (TPP) agreement, writing,
In recent years, Japan, South Korea, and China have manipulated their currencies to keep them undervalued. This boosted their exports, limited imports, and led to large current-account surpluses. But such intervention adversely affects trading partners and is barred under existing international rules. Unfortunately, those rules have proved completely ineffective.
Now a new opportunity to address the issue has emerged: The Trans-Pacific Partnership – the mega-regional free-trade agreement involving the United States, Japan, and ten other countries in Latin America and Asia. With the TPP close to being finalized, South Korea and China are watching intently, and other countries may want to join.
See also: What Is Currency Manipulation?