There is a bipartisan policy consensus among key elected officials in Minnesota: Let’s stiff 5.2 million Minnesota consumers — and hundreds of millions of others around our entire country — with higher prices for any product containing steel, and let’s endanger jobs and business profitability in steel-using manufacturing firms, all to placate a few thousand ore miners, their employers and ancillary commerce in Lake Superior iron mining areas.
All seem to agree that declines in the price of steel, and of the iron ore that goes into it, combined with increasing imports into the country, are the result of illegal actions by companies or governments from other nations. Many agree with a Democratic congressman who has introduced legislation to ban all steel imports for five years.
This not only is sheer and utter nonsense, it is dangerous nonsense. If we banned all steel imports, or even limit them, we would be shooting ourselves in our collective economic foot.
The number of Americans harmed and the magnitude of the damage they would suffer would greatly outweigh the benefits to a small number of workers and businesses in one sector.
Virtually all consumers would pay higher prices for a wide range of products, from vehicles to housing to household appliances. Farmers would pay more for machinery as would construction firms, truckers and others. These costs would be passed on to consumers. Domestic steel-using manufacturers, such as car makers, would be disadvantaged on price relative to their global competitors, both for sales in the U.S. and abroad. Net employment would drop, because the layoffs in other sectors would outweigh the gains in U.S. steel making and in related sectors such as iron ore mining.
I know I will get angry missives condemning me as a hard-hearted wretch who is out of touch with working people. I know that the plight of iron mine workers is real.
But the plight is not unique to mining workers. It is painful for anyone to lose a job. At times, in sectors as varied as printing, metal stamping and banking, the number of people laid off in a few months exceeds the sum of all mining jobs. These people hurt, too. But no high-ranking presidential assistant comes out for an emergency meeting about what to do. These job losses are seen as inevitable fluctuations in a market economy.
Nationally, the steel sector defined very broadly involves a couple of hundred thousand workers, compared with total civilian employment of just under 150 million.
Note too, that U.S. iron mining has been under pressure for decades. Iron ore and steel worldwide are in the declining phase of a “commodities super-cycle,” driven on the upside for more than a decade by China’s dramatic growth. That growth could not continue unabated over the long run. And the resulting increase in iron mining and steel mill production ensured that prices would eventually collapse at least back to historic trend levels and probably, over a shakeout period, well below past trends. That is what is happening now.
Ore and steel are not alone in their travail. The same bust is hitting nearly all natural resource commodities. It is hitting energy, with effects on the oil sector even harsher than on mining.
Oil exploration and employment is falling in North Dakota, Texas and other producing areas. Related service firms are going bust like falling dominoes. Producers abroad, as well as here, are selling crude for less than the sum of fixed and variable costs associated with producing it.
But no politician is calling for a total ban on oil imports for five years. If one did, it would be political suicide. Voters would realize what such a bad idea would do to their household budgets or businesses. We would not ease the plight of roughnecks in North Dakota or Texas by imposing big costs on 325 million other gas-consuming Americans.
There are global gluts of iron ore and of steel. Iron mines and steel mills have large fixed costs, such as interest on their huge initial investments. They have to pay fixed costs anyway. It is better to minimize losses than have no revenue at all. So you sell at whatever the going price is in these very competitive markets. It is no different from Bakken crude being sold into an oil market that is global even if little from North Dakota ever leaves the nation.
Realistically, the chance of a complete ban on steel imports passing is near zero. But we are going into a national election with mindless populism running rampant and economic sanity hiding under the bed. People need to understand that iron ore is in the same boat as corn, soybeans, timber and oil. Its producers are in a hard spot, but so are millions of others, and we don’t do anything special to help them.