Steel wars: saving a sick industry

New tariffs on steel imports to the US will prop up an ailing industry. MONIQUE DEVEREUX finds why the rust set in.

In the 1930s, Youngstown, Ohio, was a thriving city with 40,000 people working in steel plants and 35,000 in related industries.

Steel made in Youngstown was used in the Panama Canal and in the equipment used to fight two world wars. The city's main export became the framing in countless skyscrapers and the crucial foundations of suspension bridges.

From steel doors and pipes to sheet metal and office furniture, nearly everything Youngstown produced was practical and necessary.

Describing the Youngstown of the early 20th century, President Herbert Hoover called it one of the toughest cities in America.

It was known as a rough-and-tumble town. The steel mills were a punishing employer, and for most of Youngstown's residents there were few luxuries in life.

But in the Youngstown of 2002, suffering has taken on new meaning. It is no longer the pain of too much hard work, but that there is not enough hard work to be found.

American rock musician Bruce Springsteen even penned a song about the problems facing the town's steelworkers. (It is not an uncommon theme - Billy Joel sang about the declining steel mill in Allentown.)

Since 1977, Youngstown and the surrounding area have lost tens of thousands of steel jobs. The city's population, approximately 80,000, is about half what it was in 1930.

By 1992, fewer than 1000 people remained as steelworkers. The Youngstown area lost 40,000 manufacturing jobs, 400 satellite businesses, US$414 million ($961 million) in personal income and many people.

The demise of Youngstown is a familiar story in rustbelt America.

Encumbered by high-cost retirement, health and pension benefits, the US steel industry has been struggling for years to remain competitive. The problem is not helped by the global oversupply of steel products.

Over the years, other nations have streamlined and restructured their steel industries. Adding better machinery while cutting the workforce equals a cheaper production line - and a cheaper product.

It is this sort of restructuring that has enabled steel producers around the world to undercut US steel producers.

So it was seen a small victory for the US industry last week when President George W. Bush announced his decision to introduce tariffs on imported steel products.

Now any country selling steel products in the US will have to pay up to 30 per cent of the value of the product to the Government.

To recover that, the manufacturers will be forced to put up prices, making their goods less attractive than their US-produced equivalents.

The tariffs may not be a guarantee that the domestic steel industry will be able to recover from the decline that has led 32 companies to file for bankruptcy since 1997 - but it is a start.

After the announcement, Leo Gerard, president of the United Steelworkers of America, said the steel industry's problem had not been solved, "but [Bush] has given us a flashlight at the end of a very dark tunnel".

The rest of the world is not so enthused.

The new tariffs cover 10 steel product categories and range from 8 per cent to 30 per cent, and international industry leaders say they will result in a flood of cheap steel imports into Europe.

In turn, that will bring serious consequences for the global industry, which has surplus capacity across the world.

Taking effect from March 20, the tariffs cover flat-rolled steel and other steel imports from countries including New Zealand, Australia, Brazil, South Korea, Japan, Taiwan, Russia, Germany, Turkey, France, China and the Netherlands.

The highest rate will apply to flat steel products and hot and cold "bar" steel products. Slab steel will also incur the 30 per cent tariff, but only once countries have shipped 5.4 million tonnes.

Bush exempted imports from Canada and Mexico because of their partnership with the United States in the North American Free Trade Agreement. Israel and Jordan were also exempted.

Steel producers in Britain, Europe, Russia, Japan, South Korea and Brazil immediately vowed retaliation, and the European Union said it was prepared to file a formal complaint with the World Trade Organisation.

The EU is the main victim, as it produces more than 25 per cent of American imports of flat and tin mill products, on which a 30 per cent tariff will be applied. It is also worried that steel blocked from entering the United States may then land on European shores.

In New Zealand, the BHP steel mill at Glenbrook faces the highest tariff, but it will not feel the effects for several weeks. New Zealand exports about $50 million of steel a year - about 15 per cent of the Glenbrook mill's production - to the US.

Glenbrook has said it wants to be involved in the complaint to the WTO and will ask the Government for support. Objectors have 120 days to make formal submissions.

For New Zealand, Bush's announcement has sparked concerns that go further than the steel industry.

Prime Minister Helen Clark's hopes of a quick start to free-trade talks when she meets Bush in Washington this month may also have been set back.

"It is not going to be easy getting an open trade agreement with the US," she said. "There are very strong protectionist interests in the United States. If those interests are prepared to take on the EU and Japan, then New Zealand, Australia, Chile and Singapore - we are small beans."

But she hoped there could be "a window" next year if the US economy was going well and the Bush Administration was feeling more secure.

She would tell Bush that New Zealand was "ready when they are" to begin talks on free trade.

Finance Minister Michael Cullen said the tariff raised questions about how deeply the US was committed to liberalising trade.

"I think it emphasises that the US takes a slightly different interpretation of free trade to the rest of us. As I sometimes slightly unkindly put it, perhaps in the land of the free the word free gets misunderstood in this context."

Clark said she hoped her meeting with Bush would not be sidetracked by the steel issue, although she said she would express concern about it.

Back in rustbelt America, Bush's tariff last week came too late for the country's fifth-largest integrated steelmaker, National Steel Corp.

It filed for bankruptcy the day the tariffs were announced, becoming the latest steelmaker to fall prey to depressed prices, high pension costs and tough competition from imports.

National Steel is in Mishawaka, Indiana. Employing 9200 people, it is one of the largest US producers of carbon flat-rolled steel, shipping about six million tonnes a year, mainly to car and appliance makers.

But, like the 31 steel companies that bowed to bankruptcy before it, National Steel lost market share in recent years to more efficient "mini-mills", which require far less labour and can be built for about one-third the cost of integrated mills.

That was part of the reason that the steel industry sought four-year, 40 per cent across-the-board tariffs to give itself time to rebuild.

In December last year, more than 300 steelworkers, retired steelworkers and their families took the fight to save their jobs, pensions and healthcare benefits to Capitol Hill, pushing for the 40 per cent tariffs.

For more than a week they camped out near the hill to draw attention to their call for congressional support for an emergency, Government-guaranteed loan of US$250 million ($580 million) to save the jobs of 7500 steelworkers and the pensions and healthcare of 60,000 retirees.

United Steelworkers' Gerard said their lobbying might have played a part in Bush's decision, but three years of tariffs starting no higher than 30 per cent and declining over time might not give the industry the protection it needed.

Bush, facing pressure from the struggling steel industry in a congressional election year, said the tariffs would help the industry to get back on its feet.

"We've been very complimentary and we've said he's taken a bold decision," Gerard said.

Bush's plan did not answer the steel industry's plea for federal assistance with healthcare and pension costs for the retired, known as legacy liabilities.

Gerard said billions of dollars in federal aid was still needed for healthcare for retired steelworkers, and he expected lawmakers from steel states to introduce legislation by the middle of this month to require the federal Government to pick up the tab for retired steelworkers who lost health-care benefits because of company closures.

He said the initial cost of providing healthcare for 600,000 retired workers and their spouses and dependants could be in the area of US$600 million ($1393 million) a year.

But United Steelworkers is also keen to look at other solutions, including some form of public ownership that would mean running the industry for the public welfare.

The organisation says that would be a way to ensure that the jobs stay and that the people continue to work and receive their tax dollars, and possibly more, from the profits of the steel mills.

Quoted in a steelworker's union magazine during the sit-in at Capitol Hill in December, Cleveland representative Danny Banyard said: "If no one else wants to run this company, maybe the city of Cleveland could take it over."

Rick Miller from major steel company LTV agreed.

"I think its an interesting idea, eminent domain. I hadn't heard it before. If the trade laws were properly enforced, it could be very profitable for cities.

"We've already seen Pittsburgh and Youngstown die, and when they do, there is a whole class of people who are left behind and forgotten."