Tariffs Made the Rebound Possible, Industry Contends
Twenty months after President Bush imposed tariffs on steel imports, the U.S. steel industry has gone through a historic transformation. Waves of bankruptcies have given way to consolidations, with darkened mills springing back to life and buyout companies fighting over plants that had seemed moribund.
Several factors fueled the turnaround, including the government's takeover of failing pension plans and the willingness of organized labor to cut payrolls. Industry officials say the tariff protections set the stage for all that, and now they are lobbying hard to prevent the White House from giving in to Monday's ruling by the World Trade Organization that the tariffs are illegal and should end now, about 18 months before they are scheduled to expire.
The steel industry wants continued protection because it still sees itself as being in mortal danger. While weak companies have merged into more streamlined steelmakers, they haven't yet figured out how to operate as global competitors, industry executives and labor officials say.
"While a lot of progress has been made in restructuring, it's not finished," said Wilbur L. Ross, a New York financier whose International Steel Group has invested more than $1.7 billion to buy failing steel companies.
Merged companies are just learning how to function with slashed workforces, and companies still mired in bankruptcy will be unable to get creditors to help them emerge if the tariff safety net disappears, Ross said.
Others disagree, and argue that Ross and other big steel owners simply want to keep their gravy train on track as long as possible. "It's our position that any cost benefit to the U.S. economy as a whole that was going to come from the steel tariffs in helping the steel industry restructure has already occurred," said Brian Duggan, director of international programs for the Motor & Equipment Manufacturers Association, which represents auto parts suppliers who say they have been crippled by higher steel prices.
Steel prices soared shortly after the tariffs were put in place. Today, overall U.S. prices are similar to pre-tariff levels, though Duggan said certain grades of steel continue to run high. The International Trade Council found last month that higher prices cost steel-consuming industries some $680 million in just under a year of tariff protection.
Tariffs may even have slowed the restructuring of the steel industry, said Gary Clyde Hufbauer of the Institute for International Economics. Bankruptcy was probably the real factor that spurred consolidation, he said, because the government took over giant retiree pension obligations at bankrupt steel mills and made the companies attractive to buyout artists like Ross.
The tariffs kept some ailing steelmakers out of bankruptcy, though, and those companies were no longer good acquisition targets, Hufbauer said.
In the two years before the tariffs took effect in March 2002, about 34 large steelmaking firms declared bankruptcy; since then, there have been no major bankruptcies, according to steel industry officials.
Ross's ISG sparked the consolidation trend. Just as the president announced the tariffs last year, Ross announced plans to buy LTV, a major steel producer that had shut down its operations and laid off around 7,500 workers.
Ross worked with the United Steelworkers of America for a landmark labor agreement that brought LTV's mills back to life in exchange for a greatly compressed workforce. Where LTV's mill in Cleveland once employed 3,000 workers, for instance, under ISG the mill employs about 1,500. Whole layers of management were removed, and where the mill once had 34 job classifications, it now has five, said United Steelworkers contract coordinator Sherman Crowder.
ISG went on to get similar labor agreements in buyouts of Acme Steel and Bethlehem Steel, for a total investment of more than $1.7 billion. The Steelworkers gave a similar deal to U.S. Steel in that company's $1.05 billion buyout of National Steel.
All told, the flexible labor contracts probably saved the industry 20 percent in operating costs, Hufbauer said.
Labor officials say the agreements are only the beginning of the industry's work. At the former Bethlehem Steel plant at Sparrow's Point in Baltimore, for instance, maintenance technician Joe Rosel said he has to learn two extra skills -- pipefitting and ironworking -- because the shrunken workforce leaves him with more responsibilities. Across the mill, 165 job classifications have collapsed to just five, he said, meaning all 2,000 workers need additional training.
"The companies are combined on paper, but the . . . way we would work that would make us more efficient is still in transition," Rosel said. The mill needs continued tariff protection to get itself in shape, he said.
What's more, about 31 steel companies are still in bankruptcy. "If the tariffs get pulled, chances are that all or virtually all those companies will not be able to get exit financing," said Ross, adding that those companies represent 10 percent of U.S. steelmaking capacity.
He said the fact that the steel industry appears to have achieved restructuring is no reason to abandon what got them there in the first place. "We never would have bought LTV out of bankruptcy or Acme or Bethlehem if there hadn't been the tariffs," Ross said. "It would be pretty bizarre to punish an industry for restructuring itself" by taking away the tariffs before they run their course, he added.
But Hufbauer said the industry has had its chance. "I'm not saying their ills are over," he said. "Yes, their work isn't done, but that's true of almost any industry that's undergoing restructuring and improvement." What steel needs to do now, he said, is capitalize on its new labor contracts by shutting facilities and reducing capacity.
Twenty months after President Bush imposed tariffs on steel imports, the U.S. steel industry has gone through a historic transformation. Waves of bankruptcies have given way to consolidations, with darkened mills springing back to life and buyout companies fighting over plants that had seemed moribund.
Several factors fueled the turnaround, including the government's takeover of failing pension plans and the willingness of organized labor to cut payrolls. Industry officials say the tariff protections set the stage for all that, and now they are lobbying hard to prevent the White House from giving in to Monday's ruling by the World Trade Organization that the tariffs are illegal and should end now, about 18 months before they are scheduled to expire.
The steel industry wants continued protection because it still sees itself as being in mortal danger. While weak companies have merged into more streamlined steelmakers, they haven't yet figured out how to operate as global competitors, industry executives and labor officials say.
"While a lot of progress has been made in restructuring, it's not finished," said Wilbur L. Ross, a New York financier whose International Steel Group has invested more than $1.7 billion to buy failing steel companies.
Merged companies are just learning how to function with slashed workforces, and companies still mired in bankruptcy will be unable to get creditors to help them emerge if the tariff safety net disappears, Ross said.
Others disagree, and argue that Ross and other big steel owners simply want to keep their gravy train on track as long as possible. "It's our position that any cost benefit to the U.S. economy as a whole that was going to come from the steel tariffs in helping the steel industry restructure has already occurred," said Brian Duggan, director of international programs for the Motor & Equipment Manufacturers Association, which represents auto parts suppliers who say they have been crippled by higher steel prices.
Steel prices soared shortly after the tariffs were put in place. Today, overall U.S. prices are similar to pre-tariff levels, though Duggan said certain grades of steel continue to run high. The International Trade Council found last month that higher prices cost steel-consuming industries some $680 million in just under a year of tariff protection.
Tariffs may even have slowed the restructuring of the steel industry, said Gary Clyde Hufbauer of the Institute for International Economics. Bankruptcy was probably the real factor that spurred consolidation, he said, because the government took over giant retiree pension obligations at bankrupt steel mills and made the companies attractive to buyout artists like Ross.
The tariffs kept some ailing steelmakers out of bankruptcy, though, and those companies were no longer good acquisition targets, Hufbauer said.
In the two years before the tariffs took effect in March 2002, about 34 large steelmaking firms declared bankruptcy; since then, there have been no major bankruptcies, according to steel industry officials.
Ross's ISG sparked the consolidation trend. Just as the president announced the tariffs last year, Ross announced plans to buy LTV, a major steel producer that had shut down its operations and laid off around 7,500 workers.
Ross worked with the United Steelworkers of America for a landmark labor agreement that brought LTV's mills back to life in exchange for a greatly compressed workforce. Where LTV's mill in Cleveland once employed 3,000 workers, for instance, under ISG the mill employs about 1,500. Whole layers of management were removed, and where the mill once had 34 job classifications, it now has five, said United Steelworkers contract coordinator Sherman Crowder.
ISG went on to get similar labor agreements in buyouts of Acme Steel and Bethlehem Steel, for a total investment of more than $1.7 billion. The Steelworkers gave a similar deal to U.S. Steel in that company's $1.05 billion buyout of National Steel.
All told, the flexible labor contracts probably saved the industry 20 percent in operating costs, Hufbauer said.
Labor officials say the agreements are only the beginning of the industry's work. At the former Bethlehem Steel plant at Sparrow's Point in Baltimore, for instance, maintenance technician Joe Rosel said he has to learn two extra skills -- pipefitting and ironworking -- because the shrunken workforce leaves him with more responsibilities. Across the mill, 165 job classifications have collapsed to just five, he said, meaning all 2,000 workers need additional training.
"The companies are combined on paper, but the . . . way we would work that would make us more efficient is still in transition," Rosel said. The mill needs continued tariff protection to get itself in shape, he said.
What's more, about 31 steel companies are still in bankruptcy. "If the tariffs get pulled, chances are that all or virtually all those companies will not be able to get exit financing," said Ross, adding that those companies represent 10 percent of U.S. steelmaking capacity.
He said the fact that the steel industry appears to have achieved restructuring is no reason to abandon what got them there in the first place. "We never would have bought LTV out of bankruptcy or Acme or Bethlehem if there hadn't been the tariffs," Ross said. "It would be pretty bizarre to punish an industry for restructuring itself" by taking away the tariffs before they run their course, he added.
But Hufbauer said the industry has had its chance. "I'm not saying their ills are over," he said. "Yes, their work isn't done, but that's true of almost any industry that's undergoing restructuring and improvement." What steel needs to do now, he said, is capitalize on its new labor contracts by shutting facilities and reducing capacity.
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