American Steel’s Succession
Portside Date:
Author: Luke Goldstein, Jarod Facundo
Date of source:
The American Prospect

“I’ve got 50 years experience with [U.S. Steel],” Don Furko, president of the United Steelworkers (USW) union Local 1557, told the Prospect, referring to his father’s years at the company combined with his. “U.S. Steel is what a lot of my membership has only known, including myself.”

Furko was describing what is poised to be this century’s largest shake-up for the American steel industry, with reverberating consequences for organized labor and the green domestic manufacturing boom.

In early August, the 122-year-old U.S. Steel was presented with an unsolicited $7.3 billion bid from another of the industry’s giants, Cleveland-Cliffs. For most of the company’s history, Cliffs was North America’s largest iron-ore pellet supplier. But a string of vertical acquisitions in the last three years has added to the company’s reach; it’s now also North America’s top producer of flat-rolled steel.

If it acquires U.S. Steel, Cleveland-Cliffs would become the largest steel conglomerate in the United States and a top-ten steel producer in the world, competing against Chinese steel producers that have dominated global markets for decades.

Cliffs’ apparent hostile takeover was issued with the emphatic stamp of approval from the United Steelworkers, which has a heavy footprint across the vast majority of both Cleveland-Cliffs and U.S. Steel’s plants.

U.S. Steel management has thus far rejected the unsolicited offer as “unreasonable,” further stating that it needed to explore all other options on the table. Shortly after, Esmark, a non-union firm, up-bid Cleveland-Cliffs with a $7.8 billion offer. But they later rescinded that bid, in part because of the United Steelworkers’ opposition.

In a letter to shareholders, U.S. Steel has said it has received several offers besides Esmark. But the Steelworkers are adamant that the union can block any buyer other than Cleveland-Cliffs, citing a “successorship” clause from its most recent labor agreement with the company. According to the USW, the clause empowers the union with a de facto veto over merger and acquisition activity. If U.S. Steel breaches the agreement, the union is within its rights to draw the deal out in arbitration, where it has found success before. To further ramp up pressure on U.S. Steel to approve the deal, the USW transferred its bidding rights, granted by the contract, over to Cleveland-Cliffs.

Cliffs’ proposed deal, however, could face scrutiny from antitrust enforcers for creating a domestic monopoly on tin plate steel production, at a time when these materials are in high demand to supply America’s manufacturing boom.

U.S. Steel CEO David B. Burritt could be feigning concern over the antitrust regulators as a negotiation tactic. But still, it’s plausible that the Justice Department’s Antitrust Division would step in, because of the potential chokehold the merger would grant Cleveland-Cliffs in domestic steel production.

If it acquires U.S. Steel, Cleveland-Cliffs would become the largest steel conglomerate in the United States and a top-ten steel producer in the world.

If regulators intervened, that would pit labor and anti-monopoly groups—which together have formed the bedrock of the Biden administration’s agenda—in opposition.

The potential pricing power of a leviathan steel producer could impact the price of steel inputs for electric vehicles, transmission lines, bridges, and numerous other manufacturing and infrastructure projects that rely on steel components. The possibility of monopoly control is further affected by both the Infrastructure Investment and Jobs Act and Inflation Reduction Act’s domestic sourcing requirements, which companies must follow to qualify for federal subsidies and incentives.

On the labor market side, in the remaining regions of the country where steel operations continue, Cleveland-Cliffs would effectively become the industry’s sole employer. The USW has swallowed this trade-off, in part because of the likelihood that an alternative buyer of U.S. Steel would be a non-union employer. That would put pressure on Cleveland-Cliffs, which would in that scenario be a unionized steel company in a field of mostly non-union competitors paying lower salaries. That is a palpable fear for USW and its membership.

For its part, Cliffs has pledged to expand its unionized workforce. Bitterness between the USW and U.S. Steel lingers from the previous round of contract negotiations, and Cliffs would be a more welcome employer.

When the four-year agreement between Cleveland-Cliffs and the USW expired last September, the company settled and ratified a contract with the union by mid-October. Meanwhile, U.S. Steel dragged the same September deadline into late December.

USW spokesperson Jess Kamm told the Prospect that the USW and Cleveland-Cliffs recently filed a joint countervailing duty petition against China and seven other countries regarding dumping and illegally subsidized tin mill products, noting that U.S. Steel refused to participate in the case.

But the warmth between USW leadership and Cliffs isn’t automatically transferring to the rank and file. Furko told the Prospect that when the Cliffs bid and the union’s subsequent support was announced, he was surprised, but supported the decision, citing the previous rounds of tense negotiations with U.S. Steel. However, “the membership is wary,” Furko said. “A lot of people are second-, third-, fourth-generation U.S. Steel workers.” The concerns range over potential relocations and changes in benefits. “I got members who are concerned about what a buyout would mean to our pension fund.”

Despite the USW’s support for the Cliffs bid, Furko concluded, “Right now, the silence is more deafening. [The membership] just wants to hear something. They look to me and I don’t have any answers because we’re not going to get details until the very end of negotiations.”

When asked about notifying locals prior to the public announcement, USW spokesperson Jess Kamm told the Prospect, “The USW provides reliable, consistent information to the membership at U.S. Steel and Cleveland Cliffs.”

CLEVELAND CLIFFS’ PITCH EMPHASIZES its credentials as a major supplier of materials for the green economy, and the self-described sustainable practices it has implemented into production.

The ESG-style branding is further boosted by arguments that increasing domestic steel production over Chinese competitors is critical to national-security interests. Both Sen. J.D. Vance (R-OH) and Rep. Ro Khanna (D-CA) have weighed in on a potential deal, calling for it to be blocked if a foreign company tries to buy U.S. Steel—statements seen as tacit support for the USW.

For the most part, labor groups and anti-monopoly advocates have found common cause in the Biden years. The Federal Trade Commission (FTC), for example, prioritized a ban on noncompete agreements, a restrictive contract that constrains the mobility of workers to pursue better-paying jobs. Further, the recently issued merger guidelines singled out harms against labor market competition as one major consideration in evaluating mergers. A key argument used by the Justice Department’s Antitrust Division in its successful suit to stop the publishing house Penguin Random House’s acquisition of Simon & Schuster was concerns over workers (in this case, authors) being undercut in advance bidding for their books. This is an argument about monopsony power, referring to monopoly control over labor markets.

But the harmony between labor and anti-monopoly advocates ends at a certain point when interests collide. Unsurprisingly, union leadership at the national level evaluates merger activity through the impact it would leave on the union’s membership. A merger is often an opportunity for a unionized firm to make headway into a non-unionized competitor. It can also be the case that two unionized competitors merging consolidates the union’s leverage in its industry, even as the employer too has become larger. That seems to be the dynamic playing out in the case of Cleveland-Cliffs and U.S. Steel.

As Mark Glyptis, president of USW Local 2911 in Weirton, West Virginia, a Cleveland-Cliffs facility, told the Prospect, he supported the merger because it would allow Cliffs to better compete in a global market. “The stronger the company is, the stronger the union is,” Glyptis said.

But antitrust experts also point to how massive mergers can distort labor markets by eroding worker power through the creation of a single dominant employer. In the steel industry’s case, a combined behemoth of U.S. Steel and Cleveland-Cliffs would turn the region surrounding Gary, Indiana, into one where Cleveland-Cliffs is the sole employer for the industry.

Non-unionized workers are perhaps impacted even more by merger activity. If there’s less labor market competition, wages can be artificially depressed. However, unions typically reason that collective bargaining is the best tool for workers against the negative effects of consolidation, and that the downstream benefits of a strong union presence trickle down to non-unionized workers.

For the most part, labor groups and anti-monopoly advocates have found common cause in the Biden years.

But some experts argue that labor’s self-rationalization misplaces how unions lose one of their key bargaining chips as an industry consolidates. Marshall Steinbaum, a labor economist at the University of Utah, explained to the Prospect that union goals of expanding membership through mergers can backfire, instead strengthening employers with greater leverage for future negotiations.

Steinbaum drew parallels between the potential steel merger and an ongoing proposed merger between two heavily unionized grocery giants, Kroger and Albertsons. Currently, the FTC is attempting to block the Kroger-Albertsons merger, on the grounds that it would create a dominant grocer across regions. Meanwhile, the United Food and Commercial Workers (UFCW) national leadership has thrown in their support for the merger, despite concerns from certain local chapters.

“Many locals have seen their negotiating position worsen in recent years because of grocery consolidation and don’t want that to go any further,” Steinbaum said.

In both cases, Steinbaum added that it’s unproductive for union leadership to pick sides in a merger just because they prefer one employer, especially when both are unionized. He substantiated this claim by concluding that it takes away one of a union’s greatest bargaining tactics: pitting rival competitors against one another in negotiations.

For example, when a union is negotiating similar contracts with two competitors in an area, they can first pick on the negotiating party in a weaker position and threaten to strike unless they agree to certain terms. This allows the union to turn around and demand the stronger employer agree to the same terms. We may see this in the upcoming United Auto Workers (UAW) fight with the Big Three car companies; it’s possible the union will strike Stellantis, the weakest of the three, first.

This tactic is just as applicable to the steel industry. There, the USW could be sacrificing future leverage in bargaining that might be used for contractual gains across the industry, albeit with different firms. Especially as the industry is set for an upswing because several manufacturing sectors across the economy will need to rely on domestically produced steel to qualify for federal subsidies and incentives.

The USW and UFCW are not alone in their support for merger activity. The Communications Workers of America (CWA), a union of 700,000 members spread across telecommunications, customer service, media, airlines, health care, manufacturing, and elsewhere, have taken both sides in mergers across the telecommunications and technology industries. (The Prospect’s bargaining unit is represented by the Washington-Baltimore News Guild, a sector of the CWA.)

In the case of the T-Mobile/Sprint merger, CWA opposed the move because both telecom giants were non-union. Three years later, T-Mobile recently announced that it would lay off over 5,000 workers (7 percent of its workforce) after merging with Sprint, which the company promised at the time would create jobs.

Consolidation in the telecom sector in recent decades has decimated unionization rates, which have fallen from roughly 60 percent in the 1970s to just about 15 percent today. Those trends have led to lower wages and fewer jobs overall in the sector. But when CWA does support a merger, the union is calculating how its membership will fit inside a company, not necessarily evaluating the concerns of competition in the marketplace that antitrust regulators and anti-monopoly groups are monitoring.

For example, CWA supported Microsoft’s acquisition of Activision Blizzard, even as the deal would consolidate an already concentrated video game development industry, with console and PC gaming all under the same company. Meanwhile, CWA’s reasoning for supporting the bid was that Microsoft won the union’s support by signing a union neutrality agreement. Both squared off against the Federal Trade Commission, which unsuccessfully attempted to block the deal.

TWO MONTHS AFTER CLEVELAND-CLIFFS acquired AK Steel in 2020, the company partially shut down operations at AK Steel Dearborn Works in Michigan, The Detroit News reported at the time. The result was 211 union workers’ jobs being eliminated at the plant, though technically they were represented by the United Auto Workers Local 600, not the United Steelworkers. Others temporarily lost jobs too, but were offered different positions through AK Steel’s operations.

Two Cliffs plants in West Virginia, both formerly AK Steel and ArcelorMittal USA, have seen closures since their acquisition. In February 2022, a former AK Steel plant shut down, affecting 280 workers. And earlier this year, another 300 workers at a former ArcelorMittal USA plant were laid off.

In its endorsement letter, the USW states: “Cliffs has shown itself to be an outstanding employer to all of its workers … Cliffs did not cut union jobs when it bought AK Steel and ArcelorMittal, but rather significantly increased the union workforce. Cliffs now has more than 14,000 members of the USW.” But job losses at other newly acquired Cleveland-Cliffs owned facilities cast doubt on this rationale.

Jobs have been lost at U.S. Steel facilities too. More than any other remaining steel company, U.S. Steel has borne the brunt of decades of declining domestic production and plant idlings that eventually turned into plant closures, which inevitably strained relations with the USW.

The USW’s underlying logic for the Cleveland-Cliffs bid might oversimplify the reality of mergers. It posits that consolidation has no downsides because of existing collective-bargaining agreements. But mergers almost always lead to layoffs as firms consolidate operations and often try to trim costs in the process. Sometimes those casualties are limited to administrative jobs, but it can sweep up blue-collar workers too.

USW spokesperson Jess Kamm’s statement to the Prospect continued: “We have strong, effective contracts in place, including protections that apply in this very circumstance. We don’t know exactly what the future holds for U.S. Steel, but we intend to enforce our current contract with the company to its fullest extent.”

The Prospect called the offices of nearly every USW local affiliated with U.S. Steel and Cleveland-Cliffs. Some failed to respond, and others declined to make a comment. For those we did reach, local leadership for the most part supported the bid, despite not being informed about the national’s support until after their letter went public.

But those wary of the merger, who’ve experienced the stress of foreign competition, put it best. As Seth Skalnik, a U.S. Steel employee and union official at Local 1013 in Fairfield, Alabama, told the Prospect, “I’m cautious about the ownership change because we’ve seen how these deals can go wrong.”

Luke Goldstein is a writing fellow at The American Prospect.

Jarod Facundo is a writing fellow at The American Prospect. He has previously interned for The Nation, Dissent, The American Prospect, and the Institute for Policy Studies. He is a graduate of Michigan State University's James Madison College.

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