Trump’s Tariffs Revived a Steel Town, But Industry Is Unforgiving

(Bloomberg) -- Michael Antoff can thank President Donald Trump and his tariffs for the chance to spend his retirement living by the Lake of the Ozarks, goofing around with his two grandchildren.

In 2015, when U.S. Steel Corp.’s hulking mill in Granite City, Illinois, went dark, Antoff still needed 11 months of service to lock in his pension. He scraped by with odd jobs that paid a third of his former salary for two anxious years. Then, in March 2018, Trump put 25% duties on imported steel, the plant rekindled its two blast furnaces and Antoff returned to the line.

Yet Antoff’s vote remains undecided in 2020. Trump’s trade war hasn’t changed the daunting realities facing him and his 1,600 co-workers. His assault on the global trade system has included a welter of tariffs and laborious rewrites of pacts like the North American Free Trade Agreement. But the apparent lesson has been that while such measures can deliver short-term wins like the interim deal with China announced last week, they do little to alter economic fundamentals.

In Granite City, questions still hang over the plant’s long-term viability in an industry that has been shifting away from it for decades.

“Now it’s up to us, isn’t it?” Antoff, 56, said on a recent morning, sitting in a sunlit union hall yards from the mill. “You’ll never really compete against China, even though they do have tariffs in place. I mean, how do you compete with labor costs and emission costs and pollution control, which they don’t have?” That’s even before you consider American competitors running newer and more efficient mills, he said.

Trump has no greater symbol of economic victory than Granite City and his self-proclaimed rescue of the American steel industry. “We love our steelworkers,” Trump called out to a crowd celebrating the Illinois plant’s reopening in July 2018. “After years of shutdowns and cutbacks, today the blast furnace here in Granite City is blazing bright, workers are back on the job, and we are once again pouring new American steel into the spine of our country.”

That’s not where the story ends, though.

A U.S. economy that appears in good health at the national level is struggling to emerge from a manufacturing recession this year, with industrial production having fallen 0.8% in the year to November. Meanwhile, the Granite City model of an integrated mill remains under assault not just from imported metal but from nimbler, more efficient “mini mills” that for three decades have been threatening aging producers like U.S. Steel, whose Illinois furnaces date to 1921.

“One thing I’ve seen over the last 30 years working here is all the other plants that have closed and never came back, and won’t come back,” Antoff said.

The price of domestic steel is down about 40% from its 2018 high just weeks after the tariffs. U.S. Steel, meanwhile, is caught in a battle for survival due at least as much to domestic competition as international trade. Its shares fell in 2018 by 48%, making it the second-worst performer on Standard and Poor's steel index. This year, it's down about 26%. The company will report a 98% drop in profits for 2019, according to analyst estimates.

The most recent challenge to Granite City is U.S. Steel’s own bid to cut costs and diversify from the large mills on which it was built. In October, the company announced that it had bought a 49.9% stake, valued at about $700 million, in one of the country’s newest mini mills, Big River Steel LLC in Arkansas. An Alabama project is already under way.

Chief Executive Officer David Burritt said during an Oct. 1 call with analysts that Big River is key to its future, along with plants in Gary, Indiana, and the Mon Valley Works in Pennsylvania. Conspicuously missing from his list was Granite City, said Phil Gibbs, an analyst at KeyBanc Capital Markets. 

Dan Simmons, president of United Steelworkers Local 1899, which represents Granite City’s workers, insists the plant can compete. But Simmons, who joined his father and brother on the job in 1978, keeps pushing for investment and efficiencies. 

“They are always nipping at your heels, the mini mills,” he said. 

Doug Matthews, the U.S. Steel executive who oversaw the restarting of the Granite City furnaces, said that the facility, once among the company’s least competitive, has proved its worth. “It’s fully capable of being a success,” he said.

But Matthews wouldn’t discuss Granite City’s long-term future. In the end, whatever happens will serve the company’s sustainability, he said.  

Granite City’s fortunes have long been tied to both steel and tariffs.

The town was founded by German émigré brothers Frederick and William Niedringhaus, who were looking to expand their enamel-dishware-stamping business in St. Louis, just across the Mississippi River.

Frederick Niedringhaus bet early on tariffs, running for Congress in 1888 and serving a single term in large part to push for duties on imports of British tin plate. When the taxes took effect in 1890, the brothers invested heavily in Granite City. Over the century that followed, the open-hearth steel furnaces they installed grew into what is now the 1,500-acre U.S. Steel compound.

Simmons, the union leader, argues the protections that nurtured Granite City’s steel industry are still needed in a world full of unfair competitors. But Trump’s sweeping tariffs caused their own problems.

The levies were intended to repel a flood of cheap foreign metal fed by Chinese overproduction. They also, however, caused major producers like U.S. Steel to invest in new capacity even as the trade wars reduced demand. There’s a glut of domestic steel and “there’s nowhere for it to go,” Simmons said.

Dan DeMare, regional sales manager at Heidtman Steel Products, which sells components throughout the Midwest from its location near the U.S. Steel mill, said the U.S. economy’s changes are also hindering Granite City. Manufacturing capacity has been moving to non-union states on the coasts and in the South, where competitors like Nucor Corp. have an advantage. Two decades ago, there were 18 steel-service centers like Heidtman in Granite City, DeMare said. Now, there are three.

“You have a shrinking market, a shrinking pie,” DeMare said, “which is why they closed the mill in the first place.”

Still, a new generation of Granite City workers wants to get what it can from what’s left. Roughly 700 of the plant’s employees have arrived since 2018 after veterans drifted away during the shutdown.

Davirl McKnight, 40, left a job driving a forklift at a Dial Soap warehouse to become the only woman on a blast-furnace team. The job is hot and physical, but pay and benefits are better. It also beats 12-hour shifts six days a week when you have six children. 

“I know they had hard times during the layoffs and all that, but I mean I’ve heard all their stories and thought, ‘Oh my God, please no, I don’t want to go back to the warehouses,’” she said. “I don’t have time to sit here and worry about whether we’ll get laid off, or this or that. I don’t have time for it. I’ve got kids I have to worry about and I just keep moving.”

The well-being of her own city depends on the plant as well.

Granite City, like many small industrial towns, has been waging a fight for survival over the past half-century—a decline Trump promised to reverse. In 1970, more than 40,000 people called Granite City home. In 2018, only about 28,000 did, according to Census estimates. Its poverty rate last year was 17.6%, compared with 11.8% nationally.

Granite City’s budget is so stressed that the municipal government is considering selling the sewer system. Its pension system is short $130 million. The real-estate listings are heavy on foreclosure auctions and the opioid crisis is raging so openly that you can spy mid-afternoon drug deals just blocks from U.S. Steel’s cavernous blue buildings.

Alderman Gerald Williams, whose First Ward includes the plant, said the decline began in the late 1960s when a military depot scaled back. Since then, more plants have left than landed in Granite City. As a maintenance mechanic, he helped shut down four himself. 

At 79, Williams has been a Granite City resident his entire life, lives within a half block of three siblings and has four grandchildren and eight great-grandchildren in town. But his neighborhood has changed profoundly, becoming home to a mix of old-timers and a transient population living in properties owned by investors he called “slumlords.”

The alderman walks the streets with a seven-shot Ruger .380 in his back pocket. “You don’t know what you are going to run into,” he said almost plaintively.

There are still those working to reinvent Granite City.

Brenda Whitaker, who left her job as a coil operator at the mill 15 years ago to open a tea room, now has four downtown businesses. Her latest venture is a board-game café attached to her Novel Idea bookstore that features espresso, a cereal bar and a hipster staff.

She’s not giving up on Granite City—“As long as you have people who are working toward the same goal, I think: ‘Sure, it’s got a chance.’”—but she also knows that the future may not be forged in the furnaces at the mill.

 “You can’t just depend on it,” she said.

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net, Ana Monteiro

©2019 Bloomberg L.P.