Steel Talk: Did Productivity Kill Steel Jobs?

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For years, it has been pontificated by the preachers in the church of protectionism that the U.S. steel industry has been destroyed by the sins of Canadian, Chinese, and Japanese imports. Because of so-called unfair trade, America’s steel towns have been eviscerated, despairing in their ashes; the population has been rendered unemployed, impoverished, and resentful. This is what the American public has been preached for so long, and administrations of the past have exploited the outrage by enacting 18th-century trade practices.

But is Beijing or Ottawa the source of the nation’s industrial woes?

A simple glance at the numbers would astonish the average American.The U.S. trade deficit is nearly $600 billion, America imports four times as much steel as it exports, steel employment is about a quarter of what it was in 1953, and output has been flat since the mid-1980s.

Since imports of the material have coincided with these trends, the blame must be firmly placed on the globalists, foreign nations, and greedy corporations, correct? The globalists can be censured on a diverse array of subjects, but not so much on trade – except perhaps the crony, government-managed trade deals.

The primary reason for a lack of steel jobs? Heightened productivity.

Did Productivity Kill Steel Jobs?

As we have all witnessed, technology has greatly advanced in just the last 10 years alone. Cloud computing, mobile devices, and automation have enhanced our productive capacities. But the technological evolution has seeped into factories worldwide, too.

Today, steel companies have taken advantage of electric arc furnaces. These allow mini-mills to turn scrap metal into the element without having to produce steel from scratch –tossing iron ore and coking coal into blast furnaces. This method also takes very little time to achieve.

For decades, it took more than 10 man-hours to produce a single ton of steel. Under current conditions, 90 man-minutes is all that is needed. In other mini-mills, a half-a-man-hour is required to create a ton of the commodity. Simply put: steel mills are now more efficient than ever before.

At the same time, surging productivity means that these factories do not need as much manpower as they did in the 1950s or 1980s.

This trend isn’t only prevalent in the U.S. but all over the world.

Bloomberg reported in June 2017 of a new steel plant in Austria that maintains just 14 employees to manufacture 500,000 tons of steel wire per year. To mimic that output level, the same mill would have had at least 1,000 workers in the 1970s.

Last week, The Wall Street Journal published a superb staff editorial titled “Steel Tariffs Without Jobs.” The piece put forward an excellent point: Trump is attempting to resuscitate an industry of yesteryear:

The policy point is that Mr. Trump’s tariffs are trying to revive a world of steel production that no longer exists. He is taxing steel-consuming industries that employ 6.5 million and have the potential to grow more jobs to help a declining industry that employs only 140,000.

Indeed, President Donald Trump’s tariffs may merely shift the employment opportunities, but there is no net effect on the overall number of jobs. All it does is reduce living standards by raising prices and shrinking supply levels.

Bribing and Protecting the Steel Industry

Legendary economist Milton Friedman never really blamed the steel industry for requesting special privileges. “They’re trying to protect their own interests,” quipped Friedman. But he warned that the public would be “fools” if they let them get away with it. Why? Because the overall country would be worse off.

Suppose, for the sake of argument, that China is flooding the U.S. market with subsidized steel. Here are three reasons this benefits Americans:

First, the price of steel is a lot cheaper for the private sector to consume, thus allowing the cost of goods and services to become cheaper for consumers.

Second, there may be fewer steel positions (again, this is more a result of higher productivity), but the demand for jobs would transition into industries that manufacture goods with the component.

Third, the foreign capital surplus grows, establishing more opportunities for those at home. When Americans buy steel with the greenback, foreigners take those dollars and spend them, including in the U.S., like corporate stocks, real estate, or bonds. The dollars always return home, whether they’re spent in Moscow or London.

It is easier to bribe a powerful industry and private sector union with tariffs, quotas, and trade restrictions on imports than to utter the cold hard truth. Unfortunately, these bribes are costly in numerous ways and can only claim American victims in the pursuit of correcting unfair trade.

Do you think imports or productivity hurt the U.S. steel industry? Let us know in the comments section!