The iron ore and steel industries are in crisis in the U.S., and proposed legislation to ban foreign steel imports for five years would help give the industry some breathing room to recover and retool. Rep. Rick Nolan, along with Senators Amy Klobuchar and Al Franken hope to introduce such a measure this month, and they’ll undoubtedly find support from other members of Congress representing steel-making regions. We fully support these efforts.
With the U.S. economy still relatively strong, there’s sufficient domestic demand to keep U.S. iron ore mines and steel plants operating. It’s the flood of cheap steel from outside our borders that’s left those domestic producers reeling and forced layoffs of thousands of workers, including over 1,700 on the Mesabi Iron Range.
A five-year prohibition on foreign imports would allow the U.S. industry time to transition to more efficient operations that will, at least, give them a fighting chance to compete with the massive and highly-efficient new mining and steel-making operations being built elsewhere around the globe.
The current troubles on the Mesabi Range are a sign of the times. The past two decades of unprecedented industrial growth in China fueled a global bubble in basic commodities, pushing the price of oil, copper, iron ore, nickel, and many other raw materials to record highs. It was less than five years ago, for instance, that iron ore prices peaked at nearly $190 a ton, a price rise fueled mostly by Chinese demand. As with most basic commodities, the record prices prompted record expansion of production— including production of iron ore.
And much of that new production is coming from high-tech mining operations, owned by some of the biggest multinational miners in the world, with costs of production barely a quarter that of Minnesota mines. And it’s come on line just as growth in China appears to have slowed dramatically, leaving excess production around the world, in everything from iron ore to oil.
While a five-year ban would provide temporary relief, the reality is that Minnesota iron mines face extraordinary challenges ahead. The world is awash in iron ore production capacity and that doesn’t bode well for those mines with relatively high costs. While Iron Range mines have made tremendous progress in reducing production costs to approximately $50 a ton over the years, it’s going to be a challenge to compete with new mines where the cost of production is $12-$15 a ton.
While that cheap ore may not be making its way to U.S. steel producers right now, the steel produced by that cheap ore is, and that’s the challenge for the U.S. industry as a whole.
A temporary moratorium on those imports is defensible, but a longer-term ban would put other U.S. manufacturers, who use steel in any of thousands of different products, at a distinct trade disadvantage. Protecting steel industry jobs at the expense of other workers in the manufacturing sector isn’t a viable long-term solution.
Unfortunately, it presents a difficult set of choices for policy makers in Minnesota who are now grappling with how to save the mining industry. Recent changes in law, allowing Minnesota Power, for example, to cut electric rates to taconite producers, helps the industry trim its production costs, but only by forcing other Iron Range businesses and residential customers to pick up the slack. Mining companies are pushing hard for labor concessions, and they’ve pushed the state to weaken environmental standards, which are already poorly enforced on Iron Range mines.
There was a time when the tremendous natural resources of the region provided enormous tax benefits to Iron Range communities. Those have been whittled down over the years and they were trimmed still further this week when state officials okayed a cut in royalty fees.
The Mesabi Range’s lack of diversification, unfortunately, puts the state of Minnesota in a weak position— facing a choice between tax cuts, environmental sacrifice, and lower wages for miners, or potentially permanent plant shutdowns. It’s a flawed economic model. In the short term, a ban on foreign steel imports at least gives the region a fighting chance. But in the long run, northeastern Minnesota desperately needs an alternative.