Cleveland Cliffs CEO Tells House Steel Caucus Globalization Has Failed

The CEO of one of the nation’s leading steel manufacturers told the Congressional Steel Caucus on Wednesday that globalization has failed.

A globalized steel industry, one that favored heavy subsidies, overcapacity, and dumping into the U.S., nearly destroyed American steel and American steelworkers. It was the Section 232 and anti-dumping trade remedies that got them off life support.

“We have a real opportunity to address this 30-plus year-old failure called globalization,” Lourenco Goncalves, CEO of Cleveland Cliffs, told the House Steel Caucus. His was the most impassioned testimony of the steel labor unions and other steel executives brought in to discuss the global steel industry on Capitol Hill this week.

“We can only address that (failure) by building the American manufacturing sector,” Goncalves said. “Our success can influence the Midwest and American society as a whole.”

Congressman Frank J. Mrvan says he will continue to fight for Section 232 and Section 301 tariffs.

Cleveland Cliffs employs around 27,000 nationwide. They have increased their workforce thanks in large part to acquisitions and Section 232 tariffs.  The company is the largest single supplier of steel for the U.S. automotive industry.

Goncalves told Steel Caucus members that his company, Washington, and the broader society, have all learned two painful lessons in overreliance on other countries thanks to the pandemic and the Russia-Ukraine war, both of which led to massive supply chain disruptions.

He called these problems a “symptom of the relentless and systematic outsourcing of American manufacturing.”

Rep. Frank Mrvan (D-IN-1) chaired the hearing. He represents Gary, Indiana, one of the country’s hardest hit economic dead zones caused by globalization. He said the infrastructure law, signed by President Biden this year, needed to start shuffling the appropriated funds around to manufacturing communities sooner rather than later.

More importantly, Mrvan said that the Section 232 and Section 301 trade tariffs needed to remain. “We will continue to fight for that,” he told the room.

Richard Fruehauf, Chief Strategy Officer at US Steel, said that maintaining Section 232 tariffs was “vital to America’s economic security…and combating unfair trade.”

“A trendy phrase these days is reshoring of American manufacturing. I think I speak to everyone sitting at this table when I say we don’t have to reshore, because we never left. From our iron ore mines in Minnesota to our integrated iron and steel-making operations, we mine, melt and make steel in the United States. This is critical for a foundation of domestic manufacturing and for energy security. This pandemic has taught us that we need to maintain U.S. domestic supply chains. Global steel overcapacity and the action of foreign governments is a real threat to that security. The excess steelmaking (in Asia) distorts the global steel market…and we cannot allow our success today to be undermined by overcapacity and weak trade enforcement. We need to keep the Section 232 tariffs. It is absolutely vital to America’s economic security.” – Richard Fruehauf, Chief Strategy Officer, US Steel, July 20, 2022, Congressional Steel Caucus testimony.

Anthony Frabotta, Executive Vice President at Zekelman Industries told the Caucus that his company has invested over $200 million in a steel tubing and steel pipes factory in Arkansas. Other market players are doing the same in Texas, Kentucky and elsewhere. Most of this is due to the sense that Washington has their back from the mercantilist policies of China and has woken up to the issue of a global steel glut caused by Asian mills. “We are talking about billions of dollars of investments that were all made possible by the 232 ruling,” Frabotta said. “That has supported the steel industry these past few years.  Thanks to 232 and AD/CVD, we saw imports drop in a number of products but now imports are increasing, and we are currently seeing a 29% increase with imports in our segment of the market accounting for around 33%,” he said, sending a warning to House members that Asian manufacturers are always looking for ways to sell into the world’s leading market.

“A conventional shooting war between superpowers is an ever-present threat. The notion that global free trade would lead to a lasting peace is a farce. If the U.S. is to continue to serve as the world’s most influential leader, we must regain control of our manufacturing base. Put another way: giving up our manufacturing base – as we have been doing for more than 30 years now – is the equivalent of yielding power to our enemies. We have to realize what we have here – freshwater, technology, skilled labor, and the best consumer market on the planet. The power to bring back what is good in America does not depend on Wall Street or something cheap from abroad. Manufacturing in the U.S. is necessary for good-paying jobs, for capitalism, and for a peaceful society. That will keep us as the envy of the world.” – Lourenco Goncalves, CEO, Cleveland Cliffs, July 20, 2022, Congressional Steel Caucus hearing.

During the Q&A session, Rep. Rick Crawford (R-AR-1) asked Al Behr, the EVP in charge of plate and structural products at Nucor Corp, what needed to be done to address China’s subsidies to steel.

Al Behr of Nucor addresses House members of the Congressional Steel Caucus on Capitol Hill on July 20, 2022.

“We have to enforce the existing trade laws,” Behr said. “This means using them to enact measures when unfair trade is happening, but ideally before the industry is seeing harm. There are gaps in our trade laws.”

Rep. Michael Bost (R-IL-12) noted that the U.S. International Trade Commission was reviewing several existing AD/CVD cases against foreign steel products. He asked whether it was important to continue these cases, perhaps a no-brainer question for those in the room.

“The AD/CVD cases are an additional protection against unfair trade and so the ability to use AD/CVDs is critical,” said Fruehauf. “It’s not just 232s. You need strong AD/CVD and a strong Customs to enforce those trade tools, otherwise, these imports are always going to find a way to circumvent the rules.”

Rep. Pete Stauber (R-MN-8) asked Goncalves what would happen if the Biden administration removed Section 232 tariffs, adding that he has asked the White House to keep them.

“What would happen if they were removed?” he asked.

Goncalves said that there were so many different types of steel out there that are not part of the existing trade remedies, such as steel used in the electric transponders you see hanging like a silver bucket on an electric transmission substation and across power lines. Most of that is made in Mexico of Japanese and South Korean steel. He said he spoke to both the Trump and Biden administrations about that segment of the market, to no avail.

“It’s very easy to talk about Buy American, but if you don’t make it in America, you will just be talking, and nothing will get done. We are not just talking here, we are giving you information so you can pass the laws,” he said, pointing to the others sitting beside him. “When we talk about reshoring, it is because we would like to survive as a nation and as a business.”

Stauber asked him what impact anti-dumping rules have had on Cleveland Cliffs.

We could not survive as a job generation industry, and as a national security type of industry if we are not protected against companies who are just dumping steel into the United States,” Goncalves said. “It is extremely important that you understand these products don’t land in the U.S. because they are made by a better technology or that it is simply a better product.”

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