What really happened to the steel industry

The (largely false) globalization narrative

In the public imagination, no industry better symbolizes the downfall of U.S. manufacturing than steel. 

Shuttered plants dot the Midwest. 

Since 1973, steel employment has dropped 76 percent, from 610,700 to 147,300 in 2015. 

Moreover, the culprit seems clear — trade — and its influence seems pervasive: Manufacturing as a whole lost about 5 million jobs from 2000 to 2015. 

No wonder both Hillary Clinton and Donald Trump have jumped on the anti-globalization bandwagon.

Globalization seems guilty as charged — except that the popular indictment is wildly misleading.

. . . .

Despite plummeting industry employment, U.S. steel production is roughly where it’s been for decades, between 90 million and 120 million tons a year. 

Imports generally represent 20 percent to 25 percent of domestic consumption. 

True, dozens of steel plants have closed. 

But dozens of more efficient plants have opened. 

Productivity (a.k.a., efficiency) has increased dramatically.

The industry’s largest change of the past half-century is the rise of so-called “mini-mills.” 

There are now two dominant ways of making steel.

The traditional way is to start from scratch: 

Iron ore, limestone and coal are melted to form pig iron; then the pig iron is boiled in what’s known as a basic oxygen furnace to make molten steel, which is formed into various finished products (sheet for cars, beams for construction and the like).

Mini-mills are the second way. 

Their raw material is scrap steel, which is melted in electric arc furnaces to make molten steel. 

The mini-mills have a big cost advantage over the older, vertically integrated mills. 

From 1970 to 2015, their share of total U.S. steel production went from 15 percent to 63 percent, reports the American Iron and Steel Institute, an industry group.

This has huge implications. 

In a recent study, economists Allan Collard-Wexler of Duke University and Jan De Loecker of Princeton University found that the spread of mini-mills — with their greater efficiency — explained most of the industry’s job loss. 

Put differently: 

If there were no foreign trade in steel, most of those jobs would have vanished anyway. 

The least efficient vertically integrated plants were forced to close. 

The decisive competition has been domestic, not foreign.