Buy America? For Minnesota’s Iron Range, the stakes are high

WASHINGTON, D.C. — The battle over “Buy America” — one that could have serious consequences for Minnesota’s Iron Range — came to a head on Wednesday night when the Senate agreed to temper provisions in the economic stimulus package that would require U.S.-made iron, steel and manufactured goods to be used in public works projects funded through the bill.

The Senate version, which expanded on the “Buy America” measures passed by the House, sparked something of a controversy in Washington and overseas this week with the European Union threatening retaliation and even President Barack Obama advising against sending a “protectionist message” and essentially urging Congress to revise the language.

At the same time, members of the United Steelworkers union, many traveling from North Eastern Minnesota, descended on the Capitol Tuesday and Wednesday to lobby in support of the strengthened measures that (for the purposes of the stimulus money) would expand on a 1982 law basically requiring that U.S. steel and iron be used in federal highway and transit projects.

“Why should we give our stimulus package over, and buy our steel from foreign companies when we can buy it right here in the state?” said Ray Pierce Sr., president of the United Steelworkers Local 6115 at the Virginia, Minn., taconite plant, who traveled with others to Washington, D.C., to meet with Iron Range Rep. Jim Oberstar (D-Minn.) and Sen. Amy Klobuchar (D-Minn.).

Plant shutting down
Pierce, who works at Minorca Mine, which is owned by steelmaking giant ArcelorMittal, said that his plant may be shutting down temporarily this year because of the economy.

“We are the ones right now that are hurting,” said Pierce. “Let’s get our economy picked back up and growing rather than sit there and take this big stimulus package and put the money overseas.”

The amendment that the Senate accepted on a voice vote Wednesday night added language, which specified that the provisions should be “applied in a manner consistent with United States obligations under international agreements.”

The United States has treaties with more than 50 countries. Those nations may now be eligible for exceptions to the restrictions.

Craig Pagel, president of the Iron Mining Association of Minnesota, an industry group and lobbying organization, said that it was hard to tell just yet how the amendment might affect Minnesota.

“The economic impact to northeastern Minnesota may not be as great as it would have been if it would have required that only steel poured in the United States be used,” Pagel said.

The Senate rejected another amendment that would have gone much further by eliminating all the “Buy America” provisions. The amendment, offered by Sen. John McCain (R-Ariz.), was soundly defeated by a 65 to 31 vote. Earlier in the day, however, the suggestion that the provisions might be removed from the bill provoked strong words of frustration from Oberstar.

Rep. Jim Oberstar
Rep. Jim Oberstar

“If this ‘buy-America’ provision is not in this legislation, I’m off, I’m not supporting it,” Oberstar said. “I’m not going to have U.S. taxpayer dollars support foreign steel to displace U.S. steel workers in the mills and in the mines. Period.”

Given the support for the provisions in both the House and Senate, it is not likely that Oberstar will have to make good on this ultimatum — but the controversy over “Buy America” still raises some interesting questions.

Pros and cons of ‘Buy America’
On the one hand, “Buy America” supporters argue that the provision will have a direct and positive effect on American lives and therefore the U.S. economy. The Iron Range, for instance, produces about 80 percent of the nation’s iron ore, which is used in making steel. More demand equals more jobs equals more people paying taxes on social security, health care, and, of course, more spending.

On the Iron Range, it’s simple: “Mining is the engine that drives the economy,” Pagel said.

To make his point that it would be absurd not to use U.S. iron and steel in U.S. transportation and infrastructure projects, Oberstar reflects on a the Bong Memorial Bridge, which connects Duluth to Superior, Wis. At the time of construction, Oberstar led an effort to prevent Japanese steel from being used in the bridge.

“I said, ‘We’ll have iron ore from the Mesabi Range going under a bridge built with Japanese steel… intolerable,” Oberstar said.

In an interview with MinnPost Wednesday, Oberstar also pointed out that as other countries —particularly China — see their economies decline, the market place is likely to be flooded with excess steel.

“So they are going to dump that steel in the world market place. And, where do you think it is going to go? The U.S. open market,” said Oberstar.

To put this into some perspective, in 2007, the U.S. produced about 91.5 million tons of crude steel. China produced 502 million.

On the other hand, economists have argued that the “Buy America” provisions might do more damage than good. A study by the Peterson Institute for International economics suggested that the provisions could adversely affect international trade and U.S. reputation abroad. The study said that the provisions would create about 9,000 U.S. jobs but that the resulting retaliation overseas would hurt U.S. exports and may cost at least 6,500 U.S. jobs.

Similarly, the U.S. Chamber of Commerce has come out against the measures, saying that they violate free trade.

“It might help one sector for a limited period of time… but overall there is a high probability of losing thousands of more jobs,” said Chris Braddok, director of procurement policy at the U.S. Chamber of Commerce.

Terry Roe, director of the Center for Political Economy at the University of Minnesota, agreed that the provisions represented a tradeoff.

“This would certainly mean an increase in employment and continuing processing of Taconite ore, which is actually pretty high quality,” said Roe, but he added that the U.S. products are likely to be “bought at a higher price than we can get them in the world market. Therefore the goods that are ultimately produced will enter our market at a higher price.”

Cynthia Dizikes covers Minnesota’s congressional delegation and reports on issues and developments in Washington, D.C. She can be reached at cdizikes[at]minnpost[dot]com.

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Comments (8)

  1. Submitted by Eric Ferguson on 02/05/2009 - 11:14 am.

    I can’t fathom why this is controversial. Obviously when US taxpayers fund this, US workers should get the jobs. That’s the whole point. We can’t violate trade treaties, but any Buy American provisions that don’t violate those treaties should be included. Any other country trying its own stimulus would have every right to keep the money at home. The only thing different here is the scale.

  2. Submitted by David Thompson on 02/05/2009 - 11:41 am.

    I am with Oberstar on this one. Federal spending for infrastructure projects should include a requirement that the steel be made in this country from iron ore that was mined in this country.

  3. Submitted by Chris Hesler on 02/05/2009 - 12:40 pm.

    I’m also with Oberstar on this one, and I think he has the juice in D.C. to get something substantial done for the Range.

    At the same time, I have yet to hear anyone pursue the “Buy Local” angle on this topic. It’s a worthwhile tack for steering the terms of the debate away from pure protectionism.

  4. Submitted by Bernice Vetsch on 02/05/2009 - 03:07 pm.

    Other countries have to understand that we have already lost tens of thousands of jobs by moving manufacturing plants to China, et cetera, to attain lower labor costs and avoid taxes.

    We really, really need to become producers again, not just importers of everything we used to make here. If wages (and prices) become higher here, so will our rising standard of living and opportunities for the poor to move into the middle class help us recover the more equitable society we used to enjoy. THEN, we can increase imports.

  5. Submitted by John Galt on 02/08/2009 - 11:10 pm.

    Minnesota’s Iron Range has a total population of approximately 40,000, or one half of one percent of the population of Minnesota. By no means is the entire population employed by the iron mines in the area.

    Any infrastructure projects paid for by public money should be awarded to the lowest bidder. If that happens to be the mines in Northern Minnesota, so be it. If not, the savings will almost certainly employ more people in other positions and in other parts of the country.

    If public money is going to effectively control the economy of the United States, the only ethic which can be appropriately applied to it is “the greatest good for the greatest number”. It is difficult to believe that singling out a few small towns in rural Minnesota can in any way accomplish such a goal.

  6. Submitted by Eric Holst on 02/11/2009 - 04:20 am.

    There is an important point not being discussed here. I’ll start with that point but be warned, I ended up wandering into a wider and kind of long-winded discussion of the complexity of the situation at hand. Hopefully that triggers some thought about the applicability, appropriateness, and full ramifications of a Buy American provision. It’ll be split into three posts.

    The vast majority of potential business created by a steel-related “buy American” stimulus provision would be in construction projects. Those projects would use a lot of structural components (rebar, sheet piling, steel wire, joists, etc.) made from a type of steel which has little to do with Minnesota’s existing iron mines.

    Minnesota’s iron mines feed integrated steel mills, the traditional kind of steel mill which most people imagine when they encounter the term. Integrated mills use blast furnaces to transform taconite pellets into pure iron, which in turn is combined with other materials to make steel. Integrated mills make almost no structural-grade steel; instead they mainly produce high-grade flat-rolled steel which is used in products like washing machines and cars.

    Structural steel made in the U.S. comes from electric arc mini mills – smaller operations fed not by blast furnace iron but by scrap metal. The scrap is sourced mostly from the region around the mini mill, but could (and does) come in from scrapyards anywhere around the country or the world. Given that it doesn’t seem as if existing Minnesota taconite mines / plants would benefit much (if at all) from a Buy American provision.

  7. Submitted by Eric Holst on 02/11/2009 - 04:51 am.

    Now I’m going to digress a little. I’ll attempt to bring it back together at the end of the third post. As far as I can tell there is only one mini mill in Minnesota; it’s in St. Paul. The vast majority of U.S. mini mills are in Indiana, Ohio, Pennsylvania, and Texas. Although integrated mills and mini mills mainly serve different parts of the steel markets, a few mini mills are starting to have success at making higher-grade steel which actually competes with the product lines offered by the integrated mills (the ones fed by Minnesota ore.)

    Minnesota’s relationship with mini mills is changing, too. Steel Dynamics, Inc. of Indiana is building a new kind of iron ore plant in northern Minnesota which will start sending a new product, iron nuggets, by rail to their mini mill in northern Indiana later in 2009. Taconite pellets consist of precisely tailored mixes of iron and other materials which feed the very particular appetites that blast furnaces must have in order for an integrated mill to create high-grade steel. Iron nuggets, conversely, are almost pure iron – all that’s needed for mini mill feed. This operation would initially create around 65 permanent new jobs. It likely stands to benefit greatly from a Buy American provision.

    Before mentioning the second chapter of Minnesota’s relationship with mini mills, it makes sense to look briefly at the ‘American steel or Not?’ question. Minnesota’s sole electric arc mini mill (for now) is owned by Brazil-based Gerdau group. Yes, Gerdau employs Minnesotan workers with good heavy-industry jobs. On the same side of the coin, more than half of the integrated steel mills fed by Minnesotan ore are also owned by foreign steelmakers or their American subsidiaries (Dutch ArcelorMittal and Russia’s Severstal, for example.) Those companies also preside over thousands of good American. Now another foreign company (India’s Essar) is reopening an old Minnesota taconite mine and refurbishing its taconite ore-refining equipment. They plan to feed the iron concentrated from their reborn taconite mine directly into a big new on-site electric arc mini mill. If I’m not mistaken it will be the world’s first modern direct mine-to-mill steel-manufacturing facility. It will produce semi-finished steel slabs and send them to another Essar-owned steel mill in Sault Ste. Marie, Ontario for finishing. As I understand it, the Buy American provision in its early 100% pure & unadulterated incarnation likely would have prevented American stimulus projects from using that Essar’s steel (since it would have to be imported from Canada), despite the fact that it would’ve been sourced from iron ore mined and processed by Minnesotans working at an innovative new industrial plant. All of this is moot now that Canada will likely be included on “stimulus imports OK” list, and since most of the stimulus projects will be well under way when this mill comes fully online four years from now. That does not diminish the illustration here of the complex issues which can arise out of simple restrictions.

    Here’s another small but locally relevant example. There is a substantial volume of “foreign” steel on the global market right now that started out as Minnesotan iron ore. Throughout the last decade global steel demand skyrocketed and steel companies underwent a wave of transnational consolidation. One result: over the last five years millions of tons of taconite pellets mined and processed in Minnesota were loaded onto ships at Lake Superior ports and exported overseas. That created work and jobs for Minnesota miners, as well as railroad workers and dockworkers in Minnesota and Wisconsin. A good deal of those taconite pellets came from a Minnesota mine/plant owned by U.S. Steel Corp., the last bastion of full American ownership in the traditional integrated steel mill business. Those pellets were headed for mills in Eastern Europe, owned by U.S. Steel. A small fraction of the cargo was loaded directly into oceangoing ships at docks on Lake Superior. Most, however, went onto Canadian freighters, was brought to Quebec City, and there transferred onto ocean vessels for the deep-sea leg of the journey. That created more work/jobs for dockworkers in Quebec and for Canadian sailors whose ships would’ve otherwise been laid up due to a historically slow year for grain exports from U.S. ports on the Great Lakes. Just how American or foreign should we consider that steel if it were to become available to purchase for a construction project here? It touched a lot of American working hands as well as those in several other countries, and would create work for several more Americans on its way back in to the country. Other Americans would miss out on work if we chose to import that steel rather than do business with a mini mill and overland transportation workers. I’ll tie this up in the last post.

  8. Submitted by Eric Holst on 02/11/2009 - 05:08 am.

    So there is a whole other group of American industrial workers (often employed by fully American companies) who would benefit from foreign steel being imported from overseas to go into stimulus projects: thousands of longshoremen, truckers, railroaders, cargo/logistics agents, vessel agents, customs agents, tugboat crews, and local pilots would see more work unloading steel from ships at American ports. Some Minnesotan workers would benefit from steel imports too, and in fact did so regularly until recent years. Oceangoing ships that bring foreign steel to Great Lakes ports in Ohio, Indiana, Michigan, and Ontario look for cargo to take back out of the lakes, and a perfect match for them is grain grown in the Dakotas and Minnesota and loaded out of Duluth and neighboring Superior, Wisconsin. While by no means a major outlet for U.S. grain export volume, Duluth-Superior hosts one of America’s largest collections of ship-loading grain terminal capacity. The port serves as an important safety valve when America’s primary grain export route (down the Mississippi River to export terminals around New Orleans) is hampered by congestion, drought, or hurricanes. By offering an alternative to mainstream routes it helps keep downward pressure on the overall cost to Northern Plains farmers (especially those in Minnesota) of exporting grain.

    Loading grain onto a ship is a relatively complex and labor-intensive operation that employs locomotive engineers, grain elevator workers, a host of agents and inspectors, quality testers, longshoremen, tugboat crews, and local pilots. It’s a type of operation that has very recently dwindled down to nearly nothing in Duluth. As China’s consumption of natural resources has grown, Great Lakes ports have imported less foreign steel. Ocean vessels that used to call there migrated to the Pacific chasing the profit of delivering resources produced around the Pacific Rim to China. China’s pull on resources and global freight capacity coupled with steel import tarrifs imposed by the Bush Administration at the start of the decade took a heavy toll on grain exports out of Duluth and Superior. The drop in volume turned into a free fall in 2008 when the largest two of Duluth’s three ship-loading grain terminals were purchased by a Minneapolis-based hedge fund. The hedge fund utilizes the terminals’ storage capacity to make money on the commodities market. Facilities that once loaded dozens of grain ships per year now apparently spend most of their time sitting on the equivalent of just a shipload or two of grain for weeks or months waiting for the right price pattern. That almost certainly translates to less work for the terminal employees. The grain that does leave the facilities has so far left solely on rail cars, but that volume pales in comparison to the hundreds of inbound trains which once delivered grain each year, which means the railroad employees haven’t gained work either. The current type of activity does nothing for the region’s longshoremen, local pilots, agents, inspectors, and tugboat crews, whose dwindling numbers now hang onto work at the one ship-loading grain elevator left in Duluth as well as the three grain terminals across the harbor in Superior, all of which just struggled through the port’s slowest year for grain shipments in at least half a century. If a Buy American provision blocks future steel imports, what small glimmer those workers see on the horizon would disappear. The thousands of workers at other American ports would also lose out on jobs and work. That’s not to mention the possibilities for even more damage if countries like Brazil and India decide that a Buy American provision warrants reciprocal trade restrictions.

    In other words it’s a lot more complex than “buy American,” and the bit of Minnesota-related material covered above is just the tip of the iceberg. Millions of people’s livelihoods stand to be affected either way, but they’re part of a network that spans and jumps and ties national and global geography and politics in ways too complex to be dealt with by such a relatively simple bit of legislation. At best, “buy American” seems to end up meaning “pit American jobs and workers against each other.” If we’re going to play favorites amongst ourselves (not to mention other societies and nations) we had better do so very, very carefully.

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