WASHINGTON – The federal government could not have stopped the meltdown in steel prices that just cost 1,100 Iron Range workers their jobs.
But as northeast Minnesota reels from a savage hit to its economy, several members of the state’s congressional delegation say regulators could have materially softened the blow if they had enforced rules against illegal steel dumping.
“Sanctions for illegal steel dumping don’t work,” said Rep. Rick Nolan, D-Minn., who represents the Iron Range. “By the time the process is complete, the damage is done.”
Nolan sought to drive that point home along with Democratic Sens. Al Franken and Amy Klobuchar at a recent White House meeting.
At issue are two things: One is the monthslong investigative process to determine if a country is illegally dumping steel in America. The other is an array of enforcement problems that allow dumping to continue even when the federal government tries to punish those responsible.
In interviews with the Star Tribune, Klobuchar, Franken and Nolan all acknowledged that normal market forces — especially a significant drop in steel use in China — caused steel prices to crash, leading to major job losses in Minnesota and other iron ore producing states.
But each emphasized the need to make the U.S. regulatory scheme more effective to reduce the pain of such unavoidable downturns.
In Minnesota, U.S. Steel has announced that by June it will idle part of its Mountain Iron operation, affecting 700 workers, as well as its plant in Keewatin, affecting another 412 workers. Magnetation LLC also is closing a Keewatin operation, affecting 20 more jobs.
Klobuchar, who has testified in several illegal dumping investigations, said the lengthy process by which the U.S. Commerce Department and International Trade Commission determine illegal behavior can sometimes stretch to more than a year. The glacial time frame can cost American jobs because enforcement efforts come too late and bring too little relief.
Unidentified or unchecked, Franken said, U.S. businesses can continue to buy imported steel at artificially low prices that take sales from already-struggling U.S. steelmakers.
“One thing we don’t want to see is a domino effect,” Franken said. “That’s frightening for the Iron Range and the state.”
To address illegal steel dumping, the federal government requires U.S. companies to pay a fee — called a duty — when they buy imported steel from countries that subsidize production prices to push them below the market. The fees are a percentage of the purchase price and in serious cases can be 100 percent of the purchase price.
For example, with a 100 percent duty, a company that buys $1 million worth of cheap steel must also pay the U.S. government a $1 million fee. This drives the price of the foreign steel up to $2 million and makes it comparable with the cost of U.S. products that are not government-subsidized.
Nearly half the illegal dumping duties that the Commerce Department now tries to collect involve steel and iron. Roughly 60 percent of the cases the department investigated in 2014 involved steel and iron.
But that’s only half the equation. An unpublished report prepared by the Commerce Department for Congress shows that for all imports, 36,000 duty bills totaling $1.83 billion went unpaid from fiscal years 2001 to 2013.
At the Minneapolis Federal Reserve, senior research economist James Schmitz said the growth rate of China’s economy was “a big factor” in growing and sustaining Minnesota’s taconite mining industry. At the same time, Schmitz noted, “it was inevitable that China could not go on forever with its demand” for steel.
Falling oil prices strengthened the dollar abroad and also made prices of U.S. products, including steel, less competitive with foreign products, said Tim Kehoe, a University of Minnesota economist specializing in free markets.
What Congress and federal regulators must do is separate those fundamental economic forces that they cannot control from manipulation that they can, Klobuchar said.
That calls for action, Klobuchar, Franken and Nolan said. They hope their Republican colleagues in charge of the Senate and House agree. Republicans from ore producing states such as Ohio, Indiana and Pennsylvania have constituents who have also been laid off in the steel meltdown.
Whether they will see those layoffs as a catalyst for reform is unclear because the political leverage for getting reform rests in holding hostage current free trade legislation that the White House and Republicans badly want passed.
The legislation includes trade promotion authority that lets the White House negotiate an 11-nation Trans Pacific Partnership, then present it to the Senate and House for an up-or-down vote without amendments.
Nolan meets weekly with other House members in hopes of building a bipartisan coalition that can vote down trade promotion authority and give Congress the right to amend the Trans Pacific Partnership. The Minnesota steel crisis fits into this strategy, he says, because it shows how current free trade agreements are unenforceable.
Franken is not as adamantly opposed to the Trans Pacific Partnership as Nolan, but given what has happened on the Iron Range, his stance with the Obama administration is tough.
“If we can’t enforce trade agreements already made,” Franken asked, “why should we be supporting new trade agreements?”