Often regarded as the backbone of American manufacturing, thesteel industry is essential to the world’s water and food supply,energy generation, and national security. The U.S. military usessteel extensively, in applications including aircraft carriers,nuclear submarines, missiles, armor plates, and every majormilitary aircraft. There are many reasons to be concerned with thehealth of the U.S. steel industry. The industry took a cripplingblow when the economic recession of 2008–2010 halted manyconstruction projects, resulting in a drop in demand for steel.Then, in the 2010s, the American steel industry began to sufferfrom an unprecedented surge of foreign-produced steel flooding intothe United States. In many cases, these imports were nearly 50percent cheaper than U.S.-made steel, since the Chinese and someother governments subsided their steel industries, and foreignsteel companies used nonunion, low-wage workers.
Production at domestic steel mills dropped to as low as 60percent of capacity, an unsustainable level for a capital-intensivesteel producer. American steel companies began to shut down majorfacilities or reduce production. More than 12,000 steel jobs werelost in 2014 and 2015, as foreign steel imports took a record 29percent of the U.S. steel manufacturing market.
Almost one in three tons of steel sold in the United States wereproduced by foreign companies. The Chinese government owned almosthalf of the world’s steelmaking capacity. Between 2000 and 2014,Chinese steel production increased an astonishing 540 percent, withadditional surges in steel production in South Korea and Turkey.With the rising tide page 185of cheap imports entering theU.S. market from these and other countries, the U.S. steel industryknew it had to do something dramatic and quickly.
In 2015, the steel companies launched a multi-faceted andwell-funded political strategy to seek governmental protection fromthe onslaught of cheap steel imports coming into the country. Theirmain objective was the imposition of import tariffs, or anadditional fee or tax, to boost the price of foreign-made steelsold in the United States. Some political activities focused onarticulating a clear message to Congress and White House. Steelexecutives arranged for opportunities to testify before numerouscongressional committees focusing on the economy, trade, andnational security. Steel companies provided “white papers,” shortbriefs emphasizing key points, sent to congressional members andtheir staff, seeking to ensure that everyone with any politicalpower knew of the steel industry’s policy views. On the federallobbying front, the industry spent $9.43 million in 2018. NucorCorp was at the head of the pack, spending $1.7 million on issuesrelating to the renegotiation of the North American Free TradeAgreement (NAFTA), import surges and trade restrictions, and othertopics.
Other efforts targeted political candidates’ campaigns andfunneled significant dollars to key politicians and politicalparties to gain influence. As shown in Figure 1, the AmericanIron and Steel Institute, the industry’s trade association, and theUnited States Steel Corporation, a domestic integrated steelproducer, increased their levels of political action committee(PAC) campaign contributions, especially during the 2014 politicalelection cycle.
Domestic steel producers sought economic relief by filing acomplaint with the U.S. Commerce Department. The steel industry wasaware that Congress gave the Commerce Department new tools in 2015when it enacted legislation that changed the trade remedy laws, andsteel executives argued that it was critical that the departmentaggressively use them. The U.S. Steel Corporation turned to theU.S. International Trade Commission (ITC), an independent federalagency with broad investigative responsibilities on matters oftrade. The U.S. Steel Corporation filed a complaint with the ITCalleging that Chinese steel producers and distributors conspired tofix prices, stole trade secrets, and page 186falsely labelsteel products on the market. “We have said that we will use everytool available to fight for fair trade. With today’s [ITC] filing,we continue the work we have pursued through countervailing andantidumping cases and pushing for increased enforcement of existinglaws,” said U.S. Steel Corporation CEO Mario Longhi.
The steel industry also worked in coalition with others topromote their interests. It joined with other manufacturers fromthe aluminum, textile, fabric, fiber, and resin industries to formthe Manufacturers for Trade Enforcement coalition to raiseawareness of their concerns about China’s market status. Companyexecutives encouraged their employees to sign petitions calling onCongress to protect the steel industry by enacting tariffs, anadditional fee imposed on all tonnage of steel coming into thecountry. Not all other manufacturers agreed to join this effort,however. For example, Daniel Cosio of Ball Metal Food Containersaid that restricting Chinese steel imports would “lead to shortsupplies, higher prices and fewer alternatives for companies likeours. The products we buy from China are not available from U.S.producers in the quality and quantity provided by the Chinese. Thelevel of service that Chinese producers provide is superior to theservice provided by domestic steel producers.”
Some steel executives launched publicity campaigns to educateAmericans about the industry’s economic crisis. Lakshmi Mittal, CEOof ArcelorMittal, the world’s leading integrated steel and miningcompany, said that he “was counting on tariff protection to helpsave his U.S. [steel] mills, heavily concentrated in northernIndiana. [This protection] will help prices.” ArcelorMittalannounced that it would lay off 150 of the 207 workers at itsPhiladelphia plant early the following year. Kimberly Allen, asteelworker and single parent who had worked at the ArcelorMittalplant for more than 22 years, said, “I told my son, ‘Christmas isgoing to be kind of severe, because Mommy’s going to lose her jobsoon.’”
After his election as president, Donald Trump instituted tariffson steel that affected the European Union, Mexico, and Canada.(Tariffs on Chinese steel were in place before the beginning of theTrump administration.) The move was intended to boost U.S. steelproduction, but it also made steel significantly more expensive forAmerican companies. Steve Handschuh, head of the Motor EquipmentManufacturers Association, said, “Tariffs limit access to necessaryspecialty products, raise the cost of motor vehicles to consumers,and impair the industry’s ability to compete in the globalmarketplace.”
News of the tariffs caused a negative reaction on Wall Street,where investors fled stocks following Trump’s announcement. The DowJones Industrial Average declined 264 points, or 1.1 percent, theStandard and Poor’s 500 fell 0.5 percent, and the Nasdaq Compositedropped 0.4 percent. Yet, the Department of Commerce’s summer 2020steel report showed that the tariffs were successful in drivingdown import market share. A report from the American Iron and SteelInstitute, a steel trade association, stated that steel imports inthe first nine months of 2020 accounted for just 18 percent of theU.S. market, down from the 25 to 35 percent range before thetariffs.
With steel imports down, America’s steelmakers have startedinvesting at home. In addition to Nucor and U.S. Steel, companieslike Cleveland-Cliffs, Steel Dynamics, CMC, and AK Steel haveinvested billions of dollars in at least 16 major new projectsthroughout the nation. The top five U.S. steel companies more thandoubled their total annual investments between 2017 to 2019, from$1.5 billion to $4.2 billion. These new steelmaking plants, steelmills, and ore processing facilities use modern technology likeelectric arc furnace steelmaking that is cleaner and more efficientper ton of crude steel produced.
Discussion Questions
Did the steel industry act appropriately as a participant in thepolitical environment when it sought economic protection fromforeign steel imports?
What political strategies, as shown in Figure 8.2, did thesteel industry use to gain tariff protections?
What other political strategies could the steel industry haveused to promote their interests and how?
What levels of corporate political involvement, as shownin Figure 8.5, are evident in the case?
Should Chinese and other country’s steel producers be permittedto engage as a political participant in the U.S. politicalenvironment to protect their economic interests?
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8:38 1 Done ar W WILLO Reader read.willoreader.app AA FEZIWIŁ WWully www unu < > FIGURE 8.5 Levels of Business Political Involvement Levels of Political Involvement Business executives must decide on the appropriate level of political involvement for their company. As shown in Figure 8.5, there are multiple levels of involvement and many ways to participate. To be suc- cessful, a business must think strategically about objectives and how specific political issues and opportunities relate to those objectives. Level 3 Aggressive Organizational Involvement-direct and personal • Executive participation - Involvement with industry working groups and task forces - Public policy development Level 2 Moderate Organizational Involvement-indirect yet personal - Organizational lobbyist Employee grassroots involvement - Stockholders and customers encouraged to become involved (2 Level 1 Limited Organizational Involvement-indirect and impersonal . Contribution to political action committee - Support of a trade association or industry activities page 180 Organizations often begin at the lowest level of political participation, limited organizational involve- ment. Here managers of the organization are not ready or willing to become politically involved by giving their own time or getting their stakeholders involved, but they want to do something to influence the political environment. Organizations at this level may show their political interest, for example, by S AA :
8:39 1 Done W W WILLO Reader <> read.willoreader.app FIGURE 8.2 Business Strategies for Influencing Government Business ing a political action committee that contributes to a policymaker's campaign). Constituency-building strategy (where businesses seek to gain support from other affected organiza- tions to better influence government policymakers to act in a way that helps them). Source: Adapted from Amy J. Hillman and Michael A. Hitt, "Corporate Politi- cal Strategy Formulation: A Model of Approach, Participation, and Strategy Decisions Academy of Management Review 24 (1999), Table 1, p. 835. Information Strategy • Lobbying Direct communication • Expert witness testimony Financial-Incentives Strategy . Political contributions Economic leverage Constituency-Building Strategy . Stakeholder coalitions Advocacy advertising (2 AA . Public relations • Legal challenges AA Government The various tactics used by businesses when adopting each of these political strategies are dis- cussed next in this chapter. :