In his recent blog post,“To Make the U.S. Stronger, You're Going to Need Some Chinese Steel,”Dan McNichol is simply wrong in asserting that rebuilding America’s infrastructure will require Chinese steel. America’s infrastructure can and should be built with American steel. That is why current Buy America provisions are so important, and why efforts to circumvent these provisions, such as California used in the Bay Bridge project, need to be stopped.
Mr. McNichol omits some pretty significant facts about global steel trade and the Bay Bridge project in his post.
The capacity that he argues is driving the use of Chinese steel is not caused by natural market forces. Instead, it is the result of 30 years of trade violations, well-documented Chinese government subsidizationof its steel industry and an unwillingness by both political parties in this country to meaningfully enforce our trade laws.
The lack of a level competitive playing field in global steel trade has led to many U.S. steel companies going out of business. Consequently, America now has less steel production capacity and fewer good paying jobs. In 2011, overall US steel capacity utilization was under 75%.
China was not the first country to illegally dump subsidized steel in the U.S., but the ruthless trade tactics employed by its state-owned companies have taken these trade violations to a new level. China is not naturally the low cost producer of steel; the U.S. is. Steel production is energy and raw material intensive, so China’s low labor costs do not provide an advantage. ( In some US mills labor accounts for less than 10% of the cost). China has to import most of its iron ore, making it one of the highest cost steelmakers in the world. China offsets its high energy and raw materials costs through massive government subsidies, as well as by providing free land and low-interest loans from state-owned banks, not to mention the environmental differences.
Mr. McNichol is also wrong in asserting U.S. steel producers were unable to produce the quantity of steel needed for the Bay Bridge project. A consortium of U.S. steel fabricators was willing to build a new facility and steel mills around the country could have supplied the steel. The U.S. has plenty of steel capacity for this type of project. At a time of high unemployment, the Bay Bridge project could have been a much needed job creator for American workers.
Mr. McNichol also failed to mention the quality and delivery problems that occurred with the Chinese steel. The Chinese company selected had no bridge building experience prior to this project. Part of the rationale for choosing the Chinese company was that it would save $400 million, but that was before moving hundreds of employees and consultants to China. While still in progress, a third quarter 2011 report shows the contract that contains the Chinese steel has already increased by $293 million and the contractor has been given 29 months of extended time.
With the real rate of U.S. unemployment at 15.6% (those unemployed, underemployed, settled for part-time jobs or gave up looking), outsourcing high-value jobs to China for a large-scale U.S. project like this defies common sense. Our state and federal governments should be embracing opportunities and projects that will stimulate the economy and create valuable U.S. jobs.
The choice by the California Department of Transportation to use Chinese steel was also a poor environmental decision. Levels of particulate matter pollutionalone from the Chinese steel industry are nearly 20 times higher per ton of steel than in the U.S., according to recent study.
In light of these facts, it is hard to believe most Americans would find this a good use of their tax dollars. That is why we have had domestic sourcing provisions like Buy America in law for 70 years. They ensure that infrastructure projects are built using the highest quality American-made products creating both jobs and demand for domestic material. The Department of Transportation estimates that every $1 billion invested in federal highways supports 35,000 American jobs. Until we seriously deal with trade law violations, Buy America provisions will be needed.
This post was written by Thomas Gibson, President and CEO, American Iron and Steel Institute, Thomas Dancjek, President, Steel Manufacturers Association and Roger Ferch, President, American Institute of Steel Construction.