February 1, 2004
The Toledo blade
Russians take over Rouge mill
Sale shows complexity of economy, politics
By JAMES DREW
BLADE COLUMBUS BUREAU CHIEF
DEARBORN, Mich. - When Henry Ford needed steel for his auto plant in
1920, he ordered construction of the Rouge steel mill.
The massive mill became one of capitalism's citadels. Labor and capital
supplied the steel for automobiles that revolutionized transportation.
Nearly three decades after the Rouge mill opened, Josef Stalin decided
to build a steel empire in Russia, a government-run enterprise later
renamed Severstal, Russian for "north steel."
Tomorrow, Severstal - which became privately-owned after the 1991
collapse of the Soviet Union - becomes the new owner of the Rouge steel
And one of America's most powerful union locals helped the Russians buy
"I guess it goes to say what kind of society we live in today, when we
have to depend on foreign investors to preserve American jobs and the
American way of life," said Jerry Sullivan, president of United Auto
Workers Local 600, which represents 2,000 of the Rouge steel mill's
As the presidential race heads for Michigan and Ohio, Democratic
candidates will continue to focus on the economy, hammering President
Bush for the loss of 2 million manufacturing jobs since he took office
Michigan Democrats hold their caucuses Feb. 7. Ohio's presidential
primary is March 2, when 11 other states including New York and
California hold presidential contests.
Michigan, which Mr. Bush lost narrowly to Vice President Al Gore in
2000, has lost 150,000 manufacturing jobs since 2001.
Ohio, where Mr. Gore halted his campaign a month before election day
and still lost by only 4 percentage points to Mr. Bush, has lost
162,000 manufacturing jobs over the past three years.
Both states have been hammered by the recession and manufacturers
moving jobs to China and Mexico for cheaper labor.
"I don't think you can be concerned about jobs without being concerned
about failed trade policies in this country," said Lloyd Mahaffey, Ohio
regional director for the United Auto Workers.
But others say voters will judge Mr. Bush's track record on the economy
without analyzing free trade agreements.
"I think the political balance depends more on how the overall jobs
numbers are doing and whether there is a pick-up in employment, which I
think will happen," said Gary Hufbauer, a trade expert at the Institute
of International Economics in Washington.
The Rouge steel mill is at the heart of a complex debate over the
nation's economy, trade policies, and globalization.
For Jerry Sullivan, who began working at the mill 32 years ago, "the
Rouge means jobs, the quality of life that many people have been used
to, and stability of this community and this state."
Others view it as a shining example of how free trade can benefit
American workers and two countries that once were Cold War foes.
"There are benefits to be reaped from increased international trade and
globalization, and this is a good example of why it is good that a
Russian company invests in the United States, and U.S. firms invest in
Russia," said Anna Meyendorff, a business professor at the University
When Mr. Bush lifted steel tariffs last year that he imposed in March,
2002, political scientists said the decision could help the President
in steel-consuming states such as Michigan and hurt him among
steelworkers in Ohio.
It's much more complex than that, say experts who track economics and
politics in Ohio and Michigan.
"I'm still trying to understand how trade and globalization affects the
jobs issue," said Jeff Williams, vice president of a Lansing,
Mich.-based public policy firm. "If I am anti-trade and pro-jobs, the
price of goods might rise at Wal-Mart. Many of the people who are
protesting the out-sourcing of jobs also are angry about the price of
Kleenex going up."
Michigan and Ohio are among 15 states that either Mr. Gore or Mr. Bush
carried in 2000 by fewer than 5 percentage points.
Mr. Gore carried Michigan. Mr. Bush won in Ohio and West Virginia, and
among the reasons cited is President Bill Clinton's decision to reject
requests by steel companies - faced with massive imports fueled in part
by a strong U.S. dollar - to enact tariffs on cheaper, imported steel.
In March, 2002, Mr. Bush imposed tariffs of up to 30 percent on various
kinds of imported steel.
It was a controversial move that U.S. steelmakers said would give them
time to restructure, shift a big chunk of the pension costs for
retirees to the federal government, close old mills, and renegotiate
union contracts to prevent further job losses.
An estimated 20,000 jobs in U.S. steel mills were lost from 2001 to
2003, as a wave of bankruptcies and mergers hit the industry.
The tariffs initially sharply increased the price of steel. Auto parts
suppliers, already facing a weak economy, criticized Mr. Bush's
decision because automakers won't allow them to increase prices even
though materials are more expensive.
"There were a tremendous amount of unintended consequences," said Neil
DeKoker, president of a Troy, Mich.-based group that represents 345
firms that make parts for automakers.
A study by the U.S. International Trade Commission released in
September, 2003, said the tariffs had triggered thousands of jobs lost
in steel-consuming industries and cost the economy hundreds of millions
A coalition of companies that use steel said higher steel prices had
wiped out 200,000 jobs - 12,000 more than the total employed by U.S.
On Nov. 10, 2003, the World Trade Organization ruled that U.S. tariffs
on steel violated trade rules.
The WTO, which is the international group that sets trade rules, gave
the 15-nation European Union and seven other countries the power to
retaliate by slapping tariffs up to 30 percent on roughly $2.2 billion
a year in U.S. exports.
Less than a month later, Mr. Bush scrapped the steel tariffs, which had
been scheduled to phase out in March, 2005. The EU dropped its threats,
which had included imposing tariffs on citrus from Florida and textiles
from the South.
Mr. Bush's decision pleased auto parts suppliers in Ohio and Michigan.
"The suppliers basically vote with their campaign contributions," said
John Logue, a professor at Kent State University who is director of the
Ohio Employee Ownership Center.
Steel prices have climbed since last August, in part because demand has
increased in China, the world's largest steel consumer.
But auto parts suppliers cannot blame the tariffs anymore, said Mr.
DeKoker, head of the Michigan-based trade association.
Mr. Hufbauer, the trade expert at the Institute of International
Economics in Washington, believes that Mr. Bush imposed the steel
tariffs as part of a deal with Congress in 2002 to give him more
authority to negotiate trade deals.
"I don't think Bush was going to get many votes from steelworkers
anyway," he said.
But Dave McCune, who lost his job in December, 2002, when an Indian
company closed the Massillon stainless steel plant where he and 100
others worked, said Mr. Bush's decision to lift the steel tariffs has
energized union workers in Ohio and Michigan.
Along with 20 other international unions, the United Steelworkers of
America last year endorsed U.S. Rep. Richard Gephardt of Missouri for
the Democratic nomination.
Mr. Gephardt was the sole candidate to vote against the decade-old
North American Free Trade Agreement, and bills to give the President
more authority to negotiate trade deals - referred to as "fast-track" -
and to expand trade relations with China.
But Mr. Gephardt bowed out of the race after his fourth-place showing
in the Iowa caucuses. The steelworkers' union has not yet picked
Although former Vermont Gov. Howard Dean backed trade deals with Mexico
and China, he has criticized free-trade agreements for failing to
include environmental and labor standards.
Mr. McCune said he is leaning toward U.S. Sen John Kerry of
Massachusetts because he is a Vietnam War veteran.
Union members may face a repeat of 1992, when Mr. Clinton courted them
and then pursued a free-trade agenda during his two terms.
Mr. Kerry voted in favor of NAFTA, creation of the WTO, closer trade
relations with China, and "fast-track" authority for the President.
U.S. Sen. John Edwards of North Carolina was not in the Senate when the
NAFTA vote was taken. He voted in favor of expanding trade relations
with China. He changed his vote on "fast track" from a "yes" to a "no"
after provisions were deleted that would have helped workers who lose
"It will be easy to stand up to Bush on economics, but what the public
wants Democrats to stand up for is defense," said Mr. McCune, citing
Mr. Kerry's veteran status.
Like most of the other Democratic candidates, Mr. Kerry has pledged he
would take action against "unfair" trade practices, but he has said he
won't repeal or renegotiate NAFTA and WTO agreements.
Ms. Meyendorff, the business professor at the University of Michigan,
said she is alarmed that with the exception of U.S. Sen. Joe Lieberman
of Connecticut, the Democratic candidates "seem to be against
She cites Severstal's decision to buy the assets of the Rouge steel
mill for $285 million as another reason why U.S. presidents should
continue to support trade expansion.
Severstal executives committed to investing in the mill so the first
Russian company to buy one in the United States can become a supplier
to U.S. automakers. Severstal is expected to import steel slab from
Russia, and then process it at the Rouge mill.
U.S. Steel, which bid against Severstal in federal bankruptcy court,
wanted to buy the mill to shut it down, said Mr. Sullivan, president of
UAW Local 600. That would have enabled U.S. Steel to remove 2.5 million
tons of steel annually from the market "so it could name its price," he
John Armstrong, a spokesman for Pittsburgh-based U.S. Steel, declined
comment on the charge. "The price of Rouge during the bidding exceeded
the value of Rouge. That is why we stopped bidding," he said.
Last Thursday, UAW Local 600 members by a wide margin ratified a new
contract that could lead to the loss of 500 jobs at the Rouge steel
mill. Several of the laid-off workers, however, could fill slots at
Ford Motor Co., which sold the steel mill in 1989.
As a Russian company tries to keep a steel mill open which once had a
blast furnace named after Henry Ford II, Mr. Sullivan said many
American workers in Michigan and Ohio are fighting for survival.
"There's no nationalism anymore, the way there should be," said Mr.
Sullivan, 56. "It's all about profit. People don't mean anything."