Could "Buy American" Rule Spark Trade War?

This story was first published on Feb. 15, 2009. It was updated on May 21, 2009.

Steel - the so called "backbone of America" - is suffering. The credit crisis has hit the industry hard. Steel plants across the country are hanging on until the federal stimulus package kicks in with its over $100 billion for building things like highways, bridges, and power grids, and its promise to get workers back into their hard hats.

As 60 Minutes first reported in February, the package includes a "buy American" clause that the steel industry fought hard for. It says any infrastructure project paid for with stimulus dollars must use steel made in the U.S.A., and not cheaper imports.

Nucor is the biggest steel maker in the United States, with 18 plants all across the country, including one outside Blytheville, Ark., along the Mississippi River.

Plant manager Doug Jellison told 60 Minutes Nucor has revolutionized the way steel is made.

Instead of using expensive iron ore to make steel, Nucor uses mostly scrap - anything with steel, like crushed cars or old washing machines. "We are the largest recycler in North America," Jellison explained.

Over the last five years, Jellison's plant, like the U.S. steel industry as a whole, saw its profits soar. By mid-2008 Nucor had hit an all-time high. But then things changed, overnight.

"Just went off a cliff," DiMicco explained. "When the credit crisis hit, the water shut off. The flow of money shut off. It was like dominoes, boom-boom-boom-boom, boom-boom. I've never seen anything like this and no one else has in our lifetimes."

That was in October. Clients, from homebuilders to carmakers, simply vanished. Up until then, the plant was running on all cylinders, with tons of scrap cooking around the clock, seven days a week.

Curiously, they call the Blytheville plant a "mini mill," though there's nothing mini about it. It's a mini mill because they use a jolt from electrodes in a small furnace, instead of heating a huge one with coal.

Loud explosion-like sounds happen when electricity hits the metal. The process is run from a control room called the "pulpit." The operator raises the temperature to nearly 3,000 degrees, and pours the witches' brew - the steel - into a cauldron.

The cauldron is transported to something called a caster run out, where the molten steel is molded and cut into beams.

Mini mills can make steel more cheaply than it used to be made, more quickly and more efficiently. "We can literally start and stop our process like you flip a light switch on and off. So we can run full out and then, if the orders back off and we need to shut down, we just turn the light switch off," DiMicco explained.

And since October, that's what they've had to do. Nucor's employees watched helplessly as the number of new steel orders plummeted.

"It just kept droppin' and droppin' and droppin'," one employee said.

"One week, we actually had a negative," another explained.

The reason for that were order cancellations.

Mounds of scrap usually clear out in a week. But an apocalyptic landscape of metal has been sitting at the plant for months. Other steel companies have dealt with the slowdown by padlocking plants and sending workers home.

DiMicco told Stahl Nucor has not closed any of its plants. Instead, the plants are running at 50 percent capacity: facilities look like ghost towns, and yet, while well over 25,000 steelworkers have been laid off around the country, not a single worker at Nucor has.

"That's the big difference in us sitting here and you interviewing some other steel company. Because when we go through the gate, we don't have to worry about losing our job," one employee told Stahl.

Which isn't to say they aren't feeling the pain: with all of Nucor's plants non-union, the salaries of its more than 20,000 employees are tied to productivity, and productivity is now half.

Employees Stahl talked to told her they saw their salaries drop by about 50 percent.

Now they're dipping into savings, delaying retirement, cutting back on everything from food to the collection plate at church. Jeremy Davis, a cold saw operator, was making $87,000 a year.

"It's bad. You've set your bills. You've set your lifestyle around what you're making," Davis said. "And so when it's cut in half, you know, first thing you have to do is start asking yourself, you know, where can I make cuts? We don't go out to eat no more. You know, we cook at home. We eat peanut butter and jelly and ham sandwiches for lunch."

"As opposed to the caviar you were eating before," Stahl joked.

"Exactly. No, we was eating turkey," Davis replied.

In pep talks, the employees keep asking their boss, CEO DiMicco: when will the tough times end?

"A lot depends on the stimulus package," DiMicco told Stahl with a sigh. "And I hate to rely on the government to do these things for us. But the reality is that bad and we have no choice."

It's not the first time steel has turned to Washington. A decade ago the industry was on its knees, with competition from cheap imports and unsustainable retirement costs. For every steelmaker on the job, the company had to pay six to eight retired workers. The industry begged for a bailout.

"But whatever you were asking for, Washington said no. And the industry collapsed, practically," Stahl remarked.

"We had 32 steel companies, 32 in this country, go into bankruptcy. You're talking in excess of 100,000 jobs disappearing," DiMicco said.

Under bankruptcy, the companies shed their health care and retirement obligations. The industry bounced back because of consolidations, automation, and China.

"I would definitely say that the fact that the infrastructure was growing at the rate that it was growing in China and around the world, because of that we had four or five really good years," DiMicco explained.

But now steel is at the mercy of Washington again. DiMicco lobbied hard and passionately for the "buy American" clause in the stimulus package. "What we're saying is, 'Listen, yes 'buy American' benefits the steel industry in the United States. Absolutely.' But what we're saying also is might that concept not also benefit the U.S. economic engine, get it started again," he said.

DiMicco said that the counter argument - trade retaliation by other countries - is not true. "It's all garbage," he told Stahl. "People can say what they want. What we have around the world, all right, is a trade war against the United States that we have not showed up for."

DiMicco denied he is a protectionist. "I am a person who says there's no such thing as free trade. Free trade is an academic luxury the real world doesn't enjoy. If you want to study it at Harvard, study it at Harvard. It doesn't work in the real world. It has no application."

"For the United States to turn significantly inward and protectionist at this time, would be like pouring gasoline on the recessionary fires that are burning," said Jim Owens, the CEO of Caterpillar.

Owens worries that "buy American" will end up costing more jobs than it will protect. Asked how much of Caterpillar's product is sold in the U.S., Owens said, "If you got right down to new machine and new engine sales, it's roughly 75, 25."

Seventy-five percent of sales being outside the country.

Caterpillar made $16 billion last year by selling its heavy excavators and dump trucks overseas. Because of the worldwide recession, the company has already announced 24,000 layoffs. It's another company desperate for the infrastructure portion of the stimulus package. But it's also counting on other stimulus packages in China, South America, and Europe. That is, unless they retaliate.

"If we have a 'buy America' clause, other countries are going to have a 'buy China,' 'buy Europe,' 'buy Brazil' clause, and they're going to discriminate against our exported products," Owens predicted.

Also, seventy-five percent of the steel in Caterpillar trucks is American-made. If the company can't sell its earthmovers and mining tractors overseas, it'll buy less steel. Jim Owens says that not only his workers, but steel workers will be hurt by "buy American."

"If some of these other countries look upon it as a hostile act, and we're talking about China and Russia…," Stahl told Nucor's Dan DiMicco.

"We are the largest consumer in the world of Chinese-made products. They need us as much as we need them," DiMicco argued.

He says the real hostile act is China subsidizing its steel industry. In January, Chinese steel plate cost half what American plate cost. DiMicco claims that allows China to dump or sell its steel below cost.

"Taxpayers want to know why they're going to have to have their money go for something more expensive when they could get steel from China for much less. Why shouldn't we get the bargain?" Stahl asked.

"It won't be cheaper from China if it's not dumped and it's not subsidized, okay? Which are both illegal according to international trading practices. In today's environment, when you're running your operations at 50 percent of capacity, do you really think you're not going to be competitive?" DiMicco said.

President Obama visited Caterpillar in February to promote the stimulus package. But Jim Owens said even with the stimulus he may have to lay off more workers before seeing a turnaround. And he told Stahl any gain from domestic spending may not be enough if "buy American" triggers a global trade war.

So, Stahl asked DiMicco: "What happens if all these countries that sell steel to us - China, Russia, Brazil say, 'Okay, well, we're just not going to buy Caterpillar products. We're not gonna take in John Deere products. We're not going to take in GE products'?"

"The only trade war that's going on is being waged on us," DiMicco said. "And when you don't hold people accountable for playing by the rules they agreed to, that have access to your market, you're basically saying anything goes. That's garbage. That's baloney. And the American people won't stand for it."

Produced by Shachar Bar-On