During the late 19th century, when the star of American industrial power was on the rise, protectionist Pennsylvania Congressman William Kelley declared, “A people who cannot supply their own demand for iron and steel, but purchase it from foreigners beyond seas, are not independent . . . they are politically dependent.” The 21st century has opened with dozens of bankruptcies in the American steel industry, stretching back to a flood of imported steel that began in 1998.
In response to the steel crisis, Industry Week polled various experts for an article that appeared in August 2001, asking, “Does the US need to maintain a viable domestic steel industry to ensure the country’s national security?” Several of the intellectuals answered the question in the negative, including former Secretary of Labor Robert Reich and former CIA official Edward Turzanski of LaSalle University. Their reasoning relied heavily on the notion that advanced materials, high technology, and overwhelming military power have significantly reduced the importance of steel to national security. Martin Anderson told Industry Week,
If we truly got into a war in which all our steel was cut off—try to imagine that very difficult scenario—we could simply recycle enough scrap to make whatever we needed, until we got our bombers and missiles off the ground.
Anderson, an influential Babson College senior lecturer and a member of the board of directors of Gleason Corporation, also predicted, “More likely we would take over the foreign source with nuclear weapons.”
When an expert can be found to dismiss the importance of maintaining domestic sources of strategic assets on the grounds that they can always be recovered with nuclear blackmail, the world has indeed changed from the days of “Pig Iron” Kelley. Equally pernicious, however, is the underlying notion that, if necessary, lost industries could simply be resurrected and put back into operation in some form, whether for war or in other circumstances where foreign supplies of materials and goods might not be readily available. On that day, when the necessary equipment has long since been scrapped or shipped to the Far East and a nucleus of skilled workers is no longer available, it will take far more than some subsidies and the pronouncements of tenured analysts to beat plows into machine tools and battle tanks.
Many academics who advocate “free trade” on the grounds that steel is “not as critical to our security” simply lack a basic understanding of the material. While it is true that plastics, composites, and lightweight alloys can be applied in numerous ways to great advantage, steels offer strength, stiffness, toughness, and ductility in an inexpensive material that can be readily cast, formed, machined, and heat-treated. In the words of Structure and Properties of Engineering Alloys author William Smith,
No other engineering material offers such a desirable combination of properties at such a low cost as does plain-carbon steel. . . . [T]he highly industrialized countries of the world are still living in an “iron age,” and will continue to do so into the foreseeable future.
Another common error of the free-traders is the assumption that steel is a commodity lacking any differences in grade or in point of origin. Even those who ought to know better tend to speak of steel in only a generic sense, perhaps implying low-carbon structural steel. Yet there are a host of special applications that demand higher-quality steels of specific grades, compositions, and heat treatments. The success of the domestic steel industry as a whole historically provided the protective umbrella beneath which certain companies were able to make specialty steels available in reduced quantities to small-business buyers. Many of these purchasers may be too small to be on the radar of academic case studies, but they make important contributions to the national security of the United States.
One field that has been hurt indirectly by the steel crisis is the custom-gun-barrel industry. Unlike in Europe and in much of the rest of the world, a large portion of the skill and equipment for producing these critical components in the United States has been dispersed among a group of independent craftsmen who serve both the civilian and military markets. My father, Barrett “Boots” Obermeyer of Obermeyer Rifled Barrels, is one of these men. Among his many contributions to national defense have been the manufacture of the barrels used to test the armor on the military’s Bradley vehicle, Oerlikon cannon barrels for recommissioned minesweepers, and the barrels on the version of the Knight’s Armament SR-25 rifle currently issued to the SEAL’s and Special Forces. Another Wisconsin-based shop, Krieger Barrels, is a producer of barrels for the Barrett M82A1 “Light Fifty” rifle as well as test barrels for Lake City Army Ammunition Plant. The success of these and other projects has relied on the knowledge base maintained by small businesses of this type, which have, in turn, depended on domestic sources of specialty metals.
My father, for instance, has remained a one-man operation for most of his career, and, as such, there are limitations on the quantity of steel he requires and on how much he can afford to purchase at any given time. Ideally, a consumer of steel would make purchases on an as-needed basis through a stocking distributor, thereby avoiding the difficulty of large outlays and high inventories, and this is a common practice for industrial users of plain-carbon steels. For high-quality specialty steels such as the chromium-molybdenum alloy used to make gun barrels, the process is more difficult. Such steels were stocked at one time by US Metalsource Corp., but that company declared bankruptcy in 1993, and its assets were ultimately sold at auction.
Another supplier, CSC (formerly Copperweld Steel) sold barrel steel in small-quantity runs of approximately 6,000-8,000 pounds. Citing “market conditions that have dramatically deteriorated due to the competitive pressures of both foreign imports and industry overcapacity,” CSC filed for bankruptcy in January 2001 and ceased operations three months later. With dozens of steel-industry bankruptcies over a five-year period, the surviving companies have focused on keeping their doors open rather than on filling all of the market niches formerly occupied by their vanished competitors.
As the remaining inventories of CSC steel have been consumed, barrel-makers have sought new suppliers, but the surviving companies are either in questionable health or demand very large minimum-order quantities—or both. Republic Technologies International, for instance, which has been the nation’s largest producer of high-quality steel bars, filed for Chapter 11 in April 2001 and was purchased from bankruptcy in August 2002 to become Republic Engineered Products. Beyond Republic, the most favorable terms demanded by the remaining steel companies have involved minimum orders of approximately 90,000 pounds. For a custom-rifle-barrel shop, this could represent four- or five-years’ supply of steel, depending on the size of the operation, and perhaps much more for craftsmen engaged in making smaller items. This places a tremendous burden on the smaller manufacturers, who have to coordinate pooled purchases in order to avoid making what would be, for some of them, impossibly large outlays.
Foreign trade does not provide a suitable answer. European producers of barrel steel also demand high purchase quantities to make it worth their while to ship to this country, and the quality of their steel is inconsistent. One custom manufacturer in the United Kingdom has even considered hooking up with an ad hoc purchase pool in the United States.
In fact, the demand for quality steels that actually meet specification goes far beyond the gun-barrel industry to many other applications where lives could be at risk either from poor product performance or from the damage associated with catastrophic failure. The failure of pressure vessels, for instance, can easily have lethal consequences. As a result, they are designed and constructed in accordance with accepted standards, such as the Boiler and Pressure Vessel Code of the American Society of Mechanical Engineers (ASME), under the supervision of third-party inspection agencies.
The machinery manufacturer for whom I worked during the last six years began producing parts built under the ASME Code in the late 1990’s. One of these products consisted of a plate into which numerous steam passages were machined using a deep-hole drilling process. After installing our new drilling machine and beginning production, we noted that the drill heads were wearing in a way that would require us to replace them after only a few holes. Since the process, the machine, and the material were all new to our company and the holes were several feet deep, we assumed that perhaps this was par for the course—something to investigate further at some point, but not an urgent priority. Then, one day, the machinist informed me that, for the most recent part, the drill heads had lasted for dozens of holes rather than just a few. After performing some additional drilling and verifying the results against the serial-number records of the parts in question, we soon determined that the differences correlated exactly with two different sources of steel.
The steel in question was pressure-vessel-quality plate, accompanied by material test reports from each manufacturer. Every component in the end product can be traced to its source in the event of failure. In this case, some of the plates had been purchased from Bethlehem Steel and others from the Ukraine, and the sets of material data looked similar. At a loss, we sent steel chips recovered from the drilling process to a laboratory for testing. The results showed that the report from the Ukrainian steel company was fictitious; not all of the elements were even within the specified allowable composition range for the type of steel in question. In particular, the Ukrainian steel possessed an abnormally high silicon content, which was responsible for the difference in tool wear.
Another instance of deliberate falsification occurred in a large number of steel flanges imported from China during the 1990’s. According to the Nuclear Regulatory Commission,
the suspect flanges marked “China” were sold to US suppliers through several trading companies and contained cracks, inclusions, and slugged weld repairs and were constructed from two pieces of material.
The Chinese flanges, however, were marked as complying with a standard for forgings. Furthermore,
the suspect flanges were manufactured with ring inserts welded to the inside diameter of the flange and the outer surfaces were machined. Consequently, neither the welding nor the two-piece construction would be detected during a visual inspection. Other flanges were found with slugged weld repairs to the flange hub, and still others failed to meet the material specification requirements for thermal treatment, mechanical properties, or chemistry.
After the NRC issued a warning in response to an alert from the National Board of Boiler and Pressure Vessel Inspectors, similar flanges were discovered at two nuclear power plants.
A more recent case came to light in December 2002, when Illinois-based Weldbend Corporation filed suit in federal district court against three companies it accused of illegally importing falsely marked Chinese pipe fittings and steel flanges, claiming that the defendants “jeopardized the safety of individuals who use buildings and facilities in which such fittings and flanges are installed.” The lawsuit also states that Weldbend became aware of the alleged conspiracy when Chinese manufacturers solicited company representatives to participate in the scheme.
Whether the motive is incompetence, fraud, economic warfare waged by state-controlled industries, or some combination thereof, not all foreign suppliers’ claims about the steel and steel products they sell can be considered reliable. It is possible that, over time, the veracity of foreign steel manufacturers and steel-product suppliers and the quality of their products will come into line with that of their vanishing counterparts in the United States, but such a scenario is small comfort to those who have been harmed economically by unethical tactics, let alone those who may suffer harm in the future through the failure of a product built from fraudulently certified material. Bethlehem Steel, the American company whose pressure-vessel plate material we found to have been properly made and documented, filed for bankruptcy in October 2001, and its assets were ultimately acquired by the International Steel Group in May 2003.
The example of pressure-vessel materials and equipment touches on another trade-related issue that has received almost no attention outside of industry, let alone from the free-trade cheering section, yet it demonstrates how foreign bodies use means other than tariffs to protect against American industries. In order for certain types of products to be sold in Europe, they must bear a conformity assessment mark, known as the CE mark, which indicates compliance with any applicable European directives. A wide variety of parts, ranging from piping to pressure cookers and valves to vessels, has been required to conform to the European Pressure Equipment Directive (PED) since May 29, 2002.
Ostensibly, the purpose of PED was to promote free trade by establishing a single pressure-vessel standard throughout the European Union, but the truth is somewhat more complicated. Long before the advent of PED, the ASME Code was accepted worldwide as a design standard, subject to certain additional requirements in some jurisdictions; it was recognized even in European countries such as Germany and Switzerland, which had their own codes. A true effort at promoting free trade would have incorporated, or at the very least recognized, materials and procedures conforming to the existing international standard. This has not been the case.
There are three methods for approving material under the PED system. The first involves the use of materials conforming to harmonized European standards, which are not complete and, as the Department of Commerce has noted, “incorporate material specifications slightly different from those found in the ASME.” A second method, known as the European Approval of Materials (EAM), was meant to allow non-European materials specifications to be approved by the European Commission. Accordingly, ASME submitted its material specifications to this process. Unfortunately, as described in the March 2002 issue of ASME’s newsletter, The Mark, each data sheet “was contested by at least one European Member State,” and a European Commission working party subsequently ruled that “the PED prohibits the issuance of an EAM covering a type of material that is covered by a European harmonized standard.” This would be analogous to assembling children’s recreational kits for export (there is, in fact, a Toy Directive, although it functions somewhat differently from PED), only to be told by European bureaucrats that, while they have not yet finalized the list of allowable crayon colors, it certainly will not include anything already made by Crayola.
American manufacturers have been forced to resort to a final alternative known as a Particular Material Appraisal (PMA). This means that the manufacturer must pay to have a PED-certified Notified Body review and approve the suitability of every heat of material each time it is used in a different application or product, at substantial expense and wasted effort. In practical terms, if a company does any amount of export work for the European Union, it will likely have to obtain PMA’s for all materials used on those product types in order to ensure compliance without resorting to complex segregation schemes.
The PED system has effectively imposed a nontariff barrier to the European market. There is no comparable restraint of trade in the other direction, because the ASME recognizes the materials specifications of other national and international organizations, including those of the European Committee for Standardization. Furthermore, the ASME is a professional society, not an instrument of national policy, and some of its active members stand to gain financially from PED, including those providing certified inspection services.
In any case, the additional burdens associated with PED hurt the competitiveness of American companies who choose to comply, and they have caused other firms to question whether certification is worth the trouble. When PED first began to loom on the horizon, our company seriously considered the possibility of not playing the game, because, at the time, money was tight and the European market represented only a small number of installation opportunities for what was then a fairly limited product offering. American manufacturers and suppliers for whom the sale of pressure vessels and related equipment to Europe represents only a small fragment of their business have faced the same decision. The resident pressure-vessel expert who steered our company through these issues recently provided a ballpark estimate of $100,000 as a start-up cost for compliance with PED; annually, PED compliance will add 30 to 50 percent to the expense of maintaining an ASME Code program.
The trade debate must go beyond simple assertions like those of Martin Anderson that “protection is always a stupid and counterproductive policy.” Other parts of the world use various forms of protection very effectively against the United States, including cases of deceit and regulation that are fairly technical in nature and therefore receive almost no mainstream news coverage. While it is neither necessary nor desirable for Americans to adopt similar unsavory tactics, there must be some recognition that the extreme free-trade position is the equivalent of unilateral disarmament in the face of a belligerent enemy.
At the same time, discussions regarding steel need to take into account issues of quality, safety, and national security, as well as secondary effects on other vital industries. The consequences of the ongoing deindustrialization of the United States are far too important for debates about related policies to be left to the talking heads who think that steel is now “less critical” and that maintaining domestic production capability is no longer necessary. Otherwise, 21st-century America, instead of remaining in the “iron age” of industrialization, will find the great questions of the time being solved—through the alchemy of the new economy—by fool’s gold.
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