Steel Recovery Sure Sign Trade Back on Track

The latest news on trade is good--the deficit shrank in July--but especially heartening on exports, which rose again and are now 28% above last year’s level. Those results say U.S. industry is regaining markets lost to foreign competitors earlier in the 1980s.

But victory is so unfamiliar to Americans, after many years of hearing that U.S. industry can’t hack it, that many wonder how real and lasting the good news is.

The answer is it’s real, and the evidence is in steel. Steel exports this year will be up 40% to 1.6 million tons. The U.S. Steel division of USX Corp. has a contract to sell 88,000 tons of steel to the Soviet Union and is going to sell 100,000 tons to Japan. Admittedly the exports are a small portion of American steel output--less than 2%--but they are projected to continue rising for several years, and they’re an important indicator of the competitiveness of that basic industry.

More than the cheap dollar is at work. Efficiency is. The U.S. steel industry is now the most competitive in the world, says Christopher Plummer, steel specialist at Philadelphia’s WEFA economics group. It takes U.S. industry 5.5 man-hours to make a ton of steel, says Plummer, compared to Japan’s 5.8 hours--with everybody else trailing those figures.

But the question is, how did we get competitive in steel? Not so long ago, that was the industry more than any other that exemplified American defeat. It was badly run, overpriced and overpaid and so technologically behind that its mills had cobwebs.

So what happened? The U.S. industry closed plants and reduced its work force more brutally than producers in Europe and Japan. But you can’t save your way to success; the American industry has also invested in new equipment. And the result is a new American ability to produce a ton of steel with more speed and less labor than any country in the world.

The process of adjustment in which steel industries cut back to accommodate world overcapacity hasn’t been easy anywhere. In Europe, mills that had been the mainstay of whole regions closed down--while a Common Market fund guaranteed lifetime income to the discontinued workers. In Japan, where the site of the venerable Yawata steel mill may become an amusement park, the big steel companies have set up subsidiaries to employ redundant steelworkers.

But the American steel industry has reduced its work force by 60% with only a minimum of special help beyond pensions and unemployment insurance. The biggest company of all, U.S. Steel, cut both office and millworkers from 75,000 to under 20,000.

So now the company can make a ton of steel twice as efficiently as five years ago, boasts USX Chairman David Roderick, who transformed the steelmaker by diversifying into oil and gas.

The United Steelworkers union makes no pretense of liking Roderick. But USW leader Lynn Williams criticizes the system more than the individual. There should be more support for dislocated workers, Williams argues, “Pensions were never meant to restructure a basic industry.” But of Roderick, Williams acknowledges: “We have differences about implementation, but certainly he is interested in preserving an American steel industry.”

Fact is, Roderick has thought for the long term. He built a $750-million mill in Birmingham, Ala., to make tubular steel for oil field work that looked like a bad bet when it opened amid the oil depression of 1983 but looks a lot better today. It is the Birmingham mill that enabled U.S. Steel to edge out a Japanese bidder for the Soviet pipeline contract.

Now he is updating other plants and adding new equipment aimed at making U.S. Steel a supplier to markets all over the world.

So the success of U.S. industry is real, and the only question that remains is, will it last? The Japanese companies have been cutting costs, too, notes analyst Andrew Davis of PaineWebber, the brokerage company. If business slows in Japan’s home market, they’ll get more aggressive internationally. That will be the test of America’s newly efficient steel industry and of its methods of adjusting to world competition. Let’s hope the sacrifices of thousands of steel employees have not been in vain.