A major paper manufacturer said last week that it would close a long-established mill in north central Minnesota. Coming after the controversy about President Bush’s imposition of new tariffs on many steel imports, the announced closing of a paper mill offers an opportunity to reflect on the political economy of trade restrictions.
When and why does the United States limit imports to protect U.S.-based workers or companies and when and why does it not act?
This closing of the Potlatch plant in Brainerd will put some 600 people out of work. It’s not long since the closing of the LTV taconite mine at Hoyt Lakes — just 129 miles to the northeast of Brainerd — put a similar number of miners on the street.
The mine closing apparently caused much more furor than the paper mill closing. Comparing the two industries, steel and paper, gives some interesting insights.
There are many similarities between the iron ore and paper industries in northern Minnesota, and a few critical differences. Both are natural resource extractive industries.
One depends on a mineral resource, taconite, which is non-renewable. Its reserves, however, are still immense relative to extraction rates.
Paper, in contrast, uses a renewable resource, but one where current harvesting rates may be close to what is sustainable over the long run.
Paper mills and taconite plants both tend to be major employers in smaller cities where labor markets aren’t as liquid as in a major metropolitan area. Dumping 600 people into the Crow Wing County unemployment pool (Potlatch) or 450 into that of St. Louis County (LTV) has a larger relative impact than would identical layoffs in the Twin Cities metro area.
Both industries are unionized, with blue-collar earnings well above the average for comparable skills in outstate Minnesota. Both iron ore and paper mills historically have offered hard-working people with a high school education the ability to enjoy a comfortable, middle-class lifestyle.
One way the two industries differ is that iron ore mines produce a slightly refined raw material that must go on to a steel mill with blast furnaces that in turn sells its products to auto firms, builders and other manufacturers before consumers actually use the product.
Paper — such as the fine-coated grades made by Potlatch — goes to printers and then into consumers’ mailboxes.
The economic conditions that have brought financial stress to both paper and steel share several common elements.
Both steel and paper are essentially industrial commodities that are made in many countries and that are internationally traded. Both industries suffer from worldwide overcapacity that experts say will put downward pressure on profits until some of the excess is wrung from the system by mill closings.
If the two industries — paper and steel — share so many common threads, why have we not heard the clamor of political protests from paper workers that have come from iron ore and steel workers?
Why no calls for import tariffs or some sort of financial relief from government?
There’s no clear answer to these questions. But some important differences may enter in.
Most steel firms, especially those with older, integrated plants, are concentrated in steel production. In contrast, a lot of paper-making capacity belongs to forest product firms such as Potlatch or Boise Cascade that produce building products as well as paper.
Secondly, the steel industry remains more concentrated geographically. Yes, there are steel minimills in St. Paul, rural Indiana and Arkansas, but most steel is still produced on the southern shores of the Great Lakes or in the Ohio River basin.
Paper, in contrast, is produced in the Pacific Northwest, the Great Lake states, New Hampshire and Maine, Georgia, Arkansas and several other locations.
Perhaps most important, steel firms aren’t as transnational as paper firms.
But there is no U.S. steel producer that’s anywhere near 3M or Ford Motor Co. in terms of its international presence. And there is no foreign steel producer with the sort of presence that Bayer or Toyota has in U.S. manufacturing.
Paper companies tend to be more integrated transnationally. Potlatch isn’t a large international player, but it’s selling its coated paper division to a South African firm. There are Finnish and Swedish paper firms with operations in many countries, and some U.S. firms with growing assets abroad.
Why would this make a difference?
Firms are much less likely to call for import protection when they operate in more than one country. They have much more to lose by inciting trade conflicts when a significant portion of their earnings comes from operations in other countries.
History and experience may also account for some of the difference in levels of protest about import competition.
The steel industry has cried for “temporary” protection for four decades. Indeed, some of the comments President Bush made when he approved import restrictions on steel a few weeks ago virtually echoed those made nearly 30 years earlier by another Republican free-trade advocate, Gerald Ford.
The steel industry, and its unions, have decades of experience in calling for import restrictions. Import competition in the paper industry, in contrast, is much more recent.
In any case, neither the Potlatch nor the LTV closings will hurt Minnesota’s economy over the long term. Individual families will face hard transitions.
But our economy is diverse and resilient and there’ll be other career opportunities for displaced workers. Wise policies would be aimed at assisting and facilitating those career adjustments rather than trying to keep plants open against all odds.
© 2002 Edward Lotterman
Chanarambie Consulting, Inc.