Granite City steel jobs returning soon, with tariffs credited
The parent company of a Granite City steel mill got the final boost it needed to rehire laid-off workers after President Donald Trump called for tariffs on imported steel.
But other factors could have contributed to the company’s decision, including increased growth at the company.
"We've seen things have been inching in our favor. It was just the icing on the cake," said Dan Simmons, president of the United Steelworkers Local 1889. "It was a shot in the arm that was badly needed and long overdue."
Trump announced his intention to move forward with the tariffs Thursday in a meeting at the White House, specifically mentioning the Granite City mill. The tariffs will not affect Canada, the largest exporter of steel and aluminum to the United States, or Mexico while North American Free Trade Agreement (NAFTA) negotiations continue.
Other nations will have a chance to make their case with the U.S. to be excused from the tariffs, which won't go into effect for at least another 15 days, Trump said.
The White House dealt with blowback from both Democrats and Republicans after making the announcement last week. Other industries also raised concerns about how the tariffs would affect their businesses, while others said the tariffs were the good news they were waiting for.
Crediting the tariffs announcement, Pittsburgh-based U.S. Steel Corporation on Wednesday announced plans to rehire 500 previously laid-off employees at Granite City Works. That’s how many workers it takes to run one of the mill’s two blast furnaces, Simmons said.
The restart process could take up to four months, according to the company.
More than 2,000 layoffs were announced in November 2015 as a result of poor market conditions made worse by a glut of low-priced foreign steel flooding the United States market.
Roughly 200 workers were rehired in 2017 at the mill, which produces hot-rolled, cold-rolled and coated sheet steel products used in the construction, piping and tubing, and automotive industries, among others.
As of March, there were about 730 employees working in the finishing area of the mill, according to Simmons.
U.S. Steel President and CEO David B. Burritt lauded the president’s actions, saying the Granite City region has “suffered too long from the unending waves of unfairly traded steel products that have flooded U.S. markets.”
“The word around here is ecstatic,” Simmons said. “Everybody has been waiting a long time to hear this news. It's long overdue.”
Factors contributing to the rehiring
Though the company credited the tariffs announcement as the reason for putting employees back to work, other factors might have contributed to the company’s decision to refire the furnace.
On March 2, a day after the tariff announcement, U.S. Steel announced a credit extension that gives it the flexibility to borrow up to $1.5 billion from its bank into February 2023.
The extension gives U.S. Steel the flexibility to borrow the money at any point, possibly allowing it to reopen the furnace, said Andrew Gross, an accounting professor at Southern Illinois University Edwardsville.
U.S. Steel did not reply to a request for comment.
The company has enjoyed a slight amount of growth from 2016 to 2017 due to improved market conditions for the specific type of steel the Granite City mill produces, according to the company’s 2017 financial report.
From 2016 to 2017, U.S. Steel's revenue from flat-rolled steel increased by $1 billion from the previous year, marking a substantial increase in sales for the first time since 2014, according to the financial report. Throughout 2017, the product’s revenue consistently increased, ending at $8.5 billion for the year.
Simmons, president of the Steelworkers Local, said they have been advocating for the reopening of the plant for years. While Simmons said Trump’s announcement poised them in a position to reopen, market trends indicated the mill could have reopened long before Trump’s announcement.
“Conditions and market trends have been inching up enough for us to start up without the trade case,” he said.
“We should have started up a few times. They had some missed opportunities on making some good profits. They were wanting such securities (the tariffs),” he said.
Six weeks before the facility’s closure was announced, Simmons said they completed a trial for high-strength steel and were the only facility in North America capable of creating it due to their advanced equipment. This high-quality grade of steel was of interest to automakers like Nissan, which wanted the steel for its 2018 Nissan Altima model.
“Clearly in the back of their minds, they know the possible capabilities,” he said.
U.S. Rep. Mike Bost, R-Murphysboro, said the company has been working to get the plant up and operating again at the higher level, while watching the markets for steel. Bost, co-chairman of the Congressional Steel Caucus, has been in communication with U.S. Steel since the 2015 layoff announcement and has advocated for them at the federal level.
“The CEO was wanting to get people back to work,” Bost said. “We were together one evening, and he was wound tight, talking about, ‘We’ve got to figure this out, and we just need some kind of signal that we’re going to come back.’”
Trump’s tariff announcement ended up being that signal.
The company produces steel that can be used in oil production, and there has been an increase in domestic oil production, Bost said.
He added he’s not sure how long it took the company to make the decision, but they had to be prepared to restart work at Granite City because of the increase in domestic oil production
“These burners don’t turn up overnight,” Bost said.
After meeting with the president in February about the steel industry, Bost added, steel groups felt they could make a decision.
“He (the president) was sending a clear message. We are going to get this market back; we’re going to work to get this market back, and based on that, I think they were making some decisions,” Bost said.
Michael Millsap, the District 7 director for the United Steelworkers, said he doesn’t know if the jobs coming back is purely because of the tariff announcement.
“There has been an increase in the market, in some parts of it,” Millsap said. “We’ve been talking to U.S. Steel about what it takes, how many tons, where we’re at with it for quite some time now. There’s steel workers who have been pushing for these tariffs again as we always do, when they’re getting flooded into the market.”
“I think the (the tariffs are) playing a role in it,” Millsap added. “Is it totally? I couldn’t tell you that answer.”
How much money that will be pumped back into the local economy was not immediately clear, but Millsap said a worker can be compensated upward of $50 an hour when including pension costs and other benefits.
“I think more importantly, people don’t realize this, you start that furnace up, there is plant down there called Tube City, that helps with the scrap process, they’ve been idle, that’s another how many jobs? All these support jobs in that community that were lost because of the plant being idled, are now going to start coming back too,” Millsap said. “It’s not 500 jobs, maybe it’s 700 jobs, maybe it’s 800 jobs. But it’s more than 500.”
“I’m glad for my members, I’m glad for their families, and the community,” Millsap added. “This is big for the community of Granite City.”
Potential windfall from tariffs
While the proposed tariffs are undoubtedly good news for Granite City Works employees who will go back on the job, the tariffs could ignite a broader trade war and have a negative impact on other U.S. industries that use steel in their products and tools, economists say.
Trump’s tariffs will impose a 25 percent increase on the cost of all steel imports, while there will be a 10 percent tariff on aluminum.
President George Bush and President Barack Obama also implemented tariffs during their administrations. Obama implemented a 35 percent tariff on tires from China and Bush imposed a 30 percent tariff on steel. Less than two years later, Bush reversed the tariffs after global backlash.
This could make it possible for steel companies to be more competitive in the market, whereas before they just couldn’t beat the low prices of foreign steel makers, says Tim Sullivan, instructor in the Department of Economics at Southern Illinois University Edwardsville. Sullivan is also director of the Office of Regional Economic Analysis.
“(Tariffs) work in the sense that they buy time for domestic steel producers to raise their prices and be more competitive,” Sullivan said. “Whether it sticks is as much of a political decision, far more than an economic one.”
Other industries that rely on steel for their trade, such as farmers, construction or auto-makers, could suffer from higher costs caused by increased tariffs, Sullivan said. The same number of jobs gained in one sector could be lost in another.
“There are going to be people who gain from it and some people who lose because of it. There are also going to be some communities that are going to gain and some that are going to lose,” Sullivan said.
Mark Gebhards, executive director of governmental affairs and commodities for the Illinois Farm Bureau, said Illinois farmers "have some concerns."
"The potential for retaliation is there. The potential for that to be on some of our agriculture products is there as well," Gebhards said.
In 2016, China bought 31 percent of all U.S. soybean production, according to Gebhards. Of Illinois' agriculture exports, 71 percent went to countries that could be impacted by the tariffs, though excluding Canada and Mexico could make that percentage smaller, he added.
"The point is we’re very, very reliant on agriculture exports," Gebhards said.
Tariffs are also susceptible to shifts in the political wind. As soon as a new administration takes hold, the tariffs could be reversed just as easily as they were put into place, Sullivan said, but steel companies could still benefit from the tariffs, even temporarily.
“Companies could use that time to re-fit, reinvest, to take the opportunity to become more competitive but ultimately once they (tariffs) disappear, you’re back in a world steel market,” Sullivan said.
Potential trade war
With the threat of a trade war, the benefits of the proposed tariffs are a mixed bag.
World Trade Organization member countries, including the U.S., are not allowed to impose new tariffs under the organization’s rules, but Trump employed a rarely used exception to bypass those rules.
Under Section 232 rules, tariffs can be put into place if they are needed to protect national security. The president’s proposed tariffs will go into effect under this rule.
European countries have already threatened to impose their own tariffs that could affect everything from the cost of Harley-Davidson motorcycles to cranberries.
The retaliation is specifically targeted to hurt American politicians’ reputations by making commonly used products more expensive, the SIUE instructor said.
“These tariffs are designed to inflict maximum pain politically in the United States,” Sullivan said. “It becomes a political decision of whether it’s worth it to protect some out-of-work workers over others.”
Supporters of the tariffs say a trade war is not likely.
Millsap, the steelworkers union district director, said the tariffs would not cause a new trade war, saying the U.S. is already in a trade war with countries such as China, which dumps low-priced steel into the U.S. market.
“(The) trade war is with these countries, not Canada, the countries that are illegally dumping the product into the U.S.,” Millsap said.
Bost said he doesn’t believe the tariffs would cause a trade war because of ongoing trade deal negotiations with countries like Canada and Mexico.
“They’re working through a lot of trade deals. I don’t think you’re going to see a trade war start up. No one wants to go into that,” Bost said. “I don’t think they’re going to all of a sudden try to destroy each other on this one particular item.”
Simmons, the steelworkers local president, said the fear of a trade war comes from employers who profit from cheap imports.
“Employers are trying to scare these guys into it. They reaped the profits of these cheap imported steel. They want them to squeal,” he said.
Others aren't so sure there won't be a trade war, including the governmental affairs and commodities director for the Illinois Farm Bureau.
"There’s never a good time for a trade war, but especially for us in agriculture right now with the status of farm economy the way that it is," Gebhards said. "We certainly understand from the steel industry’s perspective, but we need balance. That key word there is balance. This is potentially going to hurt us."
U.S. Sen. Dick Durbin, D-Ill., said while he supports ending China's steel dumping, he said "the sweeping tariffs announced today are like dropping a bomb on a flea," urging Trump to reconsider the wide-sweeping tariffs on America's allies.
U.S. Sen. Tammy Duckworth, D-Ill., said in a statement Thursday she welcomed the news that steelworkers would be back on the job, but she also expressed concern about how Trump went about announcing the tariffs.
“I am alarmed by the President’s haphazard announcement and reckless threats about trade wars, which are causing chaos and confusion in other American industries while creating barriers for key allies and trading partners who play by the rules." Duckworth said in the statement. "It’s not clear that these broad tariffs will ultimately benefit the American workforce, economy or consumers in the long run."