One of the frustrations in living through the booms and busts of the Iron Range economy is the simplistic way our mining-based economy is portrayed in the media. It’s either, “The Range will die soon,” or “EVERYTHING IS GREAT!” The problem is neither of these statements have been true at any point in history.
It’s especially true today. The Iron Range is changing, but that’s not new. This process began decades ago and will continue until one day we look about and see a world completely different than 1978 — the model on which most baby boomer leaders continue to dream.
And we’re not alone. China, the villain in our Iron Range iron and steel narrative, has its problems, too. It has a sizable chunk of the world’s population within its borders and needs to find a way for a billion people to keep working to avoid social problems and civil unrest.
To imagine the unrest, picture the scene at an Iron Range bar where four or five laid off miners complain about their state in life. Now picture 100 times more unemployed miners at that bar — at every bar — and wonder what might happen.
That, in a nutshell, is why China “dumps” steel — selling it at a price lower that it costs to produce. They lose money, but they keep peace and power.
The rest of the largely capitalist world doesn’t like dumped steel because it busts the markets. Markets have fewer qualms about laid off workers, busying them with lousier jobs and longer hours. You can’t complain at the bar when you’re pulling a double at Taco Bell to make a house payment. Markets care about price and profit. Markets, by the way, aren’t people, but their beneficiaries are.
Because China’s steelmaking capacity is so much greater than that of the United States or Europe, China’s actions have disproportionate impact. Which is what leads us to the trade protections — nay, the burgeoning trade war — between the United States and China.
We’re very familiar with aspects of this trade problem here in Northern Minnesota. The mining industry downturn of 2015 and 2016 is attributed largely to the collapse in demand for iron ore due to low prices and dumped steel, mostly from China. But what we see is only a fraction of the picture.
We cheer as U.S. Rep. Rick Nolan, and U.S. Sens. Amy Klobuchar and Al Franken secured tariffs on dumped steel. There’s evidence those measures are a big part of the reason the mining industry is less miserable now that it was a year ago.
But we’re still in relatively rough shape, certainly the region’s economy remains badly out of balance, and we now see that some of the mining-related jobs lost in this recent downturn are likely never coming back.
China, in response to the world’s backlash against its trade practices, is in a tough bind. It needs trade, but it needs to keep those workers on the job. So this week at an international trade meeting, China vowed it would shut down its “zombie” steel mills over the next five years. Whether it will or whether it will simply dump steel somewhere else, perhaps into the growing economy of populous African nations, remains to be seen.
I talked about the “zombie” problem in a Feb. 4 post about this same topic:
I reported last week about how American ports are building for more steel imports, not less. Yet weeks ago, Business Insider reported on “zombie” ships sailing the oceans. These would be ships that are leveraged so deeply that their owners can’t make money even fully loaded with commercial cargo. Nevertheless the companies keep running their shipping routes because they need cash. In many cases they’re shipping “zombie” Chinese steel at a loss for both themselves and their customers.
That’s the damnedest thing. No one is making any money! Oh, executives are still getting paid plenty, but the companies have become money pits. The reason is debt and overproduction. Yet the companies continue going into debt and overproducing. Zombies!
The reason people fear zombies is because they can turn you into a zombie, too. This is the heart of the fear here in Northern Minnesota, where we hope the cold winters and deep woods would keep us safe. They can’t keep us safe forever. Dependence on this business model will probably never keep us safe again.
Not much new today.
China, by the way, reports that it will invest in value added iron products at its mines and mills, doing what European steelmakers have done to survive these turbulent times. Since they don’t care about making profits, there’s certainly no barrier to them building experimental plants all over the land. It will, after all, keep their workers on the job.
In terms of investment in the value-added goal, Minnesota’s Iron Range isn’t even close to the rest of the world. That should probably be the biggest fear of everyone involved in the Mesabi mining industry.