Corporate Welfare

Steel: The Eternally Infant Industry

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It's an old story, but always worth revisiting: how government actions allegedly meant to "help domestic industries" hurt other domestic industries. See today's Los Angeles Times for a report on industry complaints about steel anti-dumping duties, that punish foreign steel suppliers for allegedly selling at too low a price. Southern California metal stamping companies complain that the duties have doubled their prices on galvanized steel; "U.S. and foreign automakers have joined other U.S. steel consumers to persuade the U.S. International Trade Commission to revoke the duties when it meets in mid-December."

Domestic steel makers say the car makers and steel users are being big crybabies and that, although the steel makers are in the scratch now (after, as the story notes, "shifting much of their multibillion-dollar pension liabilities to the government"), the domestic steel industry hovers always, in its own poormouthing estimations, on the abyss of economic doom: "they say the addition of capacity in China and India could lead to another steel glut and price-slashing if the global economy hits a rough patch."

An exec from Aggressive Engineering Corp., a Southern California metal stamping company. complains:

he had lost two of his biggest customers — a home electronics firm and a fitness equipment company — to competitors in China since the duties were imposed. He said his foreign competitors had access to cheaper steel and were able to produce and ship parts to the U.S. for the same price it costs him for raw materials.

Whole story of steel-sellin' men and the steel-usin' industries they are holding up here.

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  1. As an engineer who has responsibility over large pieces of machinery generally made of steel, I have to say that it’s quite true that high steel prices are hurting industries and trades that use steel as a raw material.

    High prices of steel are leading companies to cut back the scope of capital improvements that employ iron workers, millwrights, etc., whose unions are closely associated with steelworkers’.

    In addition, normal operating and maintenance budgets are being overwhelmed by increased costs of steel-based repair parts, structural steel, pipe, fittings, and fasteners. The O&M budget can only go so far, so either the end-user labor gets hurt or the equipment goes unmaintained.

  2. But isn’t it the government’s job to protect investments in companies that can’t compete in the marketplace? How can you be so callous and greedy as to ask the government not to protect others at your expense?

  3. This video will tell you everything you need to know about the steel industry.

    http://youtube.com/watch?v=OHa4Pn6quLQ

    I for one believe that this wonderful culture must be preserved from the cold greediness of globalist plutocrats.

  4. it isn’t the steel but the price that government intervention has created. Not really economics – more fantasy/corruption/lobbying…

  5. The steel industry has been asking for government protection from foreign competition on and off since the 1820’s! Certainly the most ardent protectionist must have to ask how long does it take for an industry to get to its feet?

    Joking aside, the steel industry suffers from some interesting problems. First, because it produces materials used solely in production, demand varies very wildly throughout the business cycle. The busts are worse and the booms are more heady. The industry also suffers from very high capital costs. Blast furnaces and rolling mills are expensive and time consuming to set up. Additionally the older companies are groaning under pension obligations that they cannot meet. The first steel company I worked at, LTV steel had I think 7 retirees drawing a pension for every active employee in the final year before it went bust. The unionised companies generally suffer from inefficient procedures and sclerotic management.

    Steel is also an inherently political industry. The large pool of pensioners form a powerful political block. There are issues of national pride (eg. “the steel in our warships should come from America!”). So unfortuantely, rather than letting the industry contract gradually, the politicians interfere and meddle, postponing and worsening the inevitable downturn.

    Having worked in both an old-school integrated mill and at a lean and mean minimill I have llong felt that the best thing to do is to stop propping up the steel industry. We have so much steel making capacity in the world that the market clearing price is below the manufacturing costs in the U.S.

    If we allow the price of steel to fall, production will shift from making steel to consuming it to produce other goods. This will have the benefit of allowing workers who formerly worked in the steel mills to transfer their labor to more profitable and sound industries, and will increase the range of goods available for purchase within the U.S.

    The most serious problem is the question of what to do with the pensioners who lose their pensions as their former employers go bust. There is no easy answer to this problem. I have, however, taken the lesson to heart that I will not ever structure my finances to be dependent on a pension. (It was hell, my phone number in the integrated mill was one digit off from the hotline for retirees. Some of the guys who accidentally called my number were facing utter ruin since they were too infirm to work. Very heart rending.)

  6. *thump*thump* is this thing on?

    Big Business: Not interested in economic liberty. Only interested in economic protections. Enter government, stage right and stage left…

  7. I was amused to see recently an article in which Nucor Steel trumpeted record profits, two paragraphs before demanding protection from the Yellow Peril.

  8. Pension plans should be fully funded and actuarily sound Trust funds. To the extent PBGC remains, it should be given first lien on all assets (ahead of any banks) with an insurance premium that covers the failure of any judgement-proof participants. [This would pretty much spell the demise of traditional pension plans, but increase the growth of 401K and other portable plans.] It is interesting how some candidates for congress can get all worked up about companies dumping their pension responsibilities on the taxpayer, while at the same time demanding the taxpayer bail out the social security excesses voted in by the “greatest generation.”

  9. creech has a good point about pension plans being fully funded. The fact that, for many years, companies were able to exclude the unfunded portion of pension liabilities from their balance sheets is a major failure of the accounting industry. I believe this has now been corrected.

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