American Steal: How U.S. steelworkers lost to China
Saturday, October 15th, 2011
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In September 2010, with politicians of all stripes at all levels of government calling for programs to create jobs, California Gov. Arnold Schwarzenegger took an unusual step for a public official about to leave office: He visited a factory to conduct a pep rally for its workers. Never mind that he could not seek reelection or that the workers could not vote for him. The Terminator was passionate about their efforts:
"There was one thing that I demanded from my staff, and that was that ... we have got to put a certain amount of time aside so I can go and visit the workers that are building our Bay Bridge, so that I have a chance to say 'thank you, thank you, thank you for the great work you are doing. You have done an extraordinary job because so many of you go to work every day and do welding, painting, lifting, designing, shipping, all of those things in order to help us in California rebuild our Bay Bridge.' "
The workers erupted in applause and rushed to shake his hand, or in some cases just stand next to him, a typical crowd reaction to a Hollywood movie star turned politician.
What set the event apart was its location — the floor of the Zhenhua Heavy Industries factory, about 30 minutes outside Shanghai, China. The company has fabricated thousands of tons of steel components for the new 8-mile long bridge that connects San Francisco and Oakland. As for the army of workers laboring on the project, all are Chinese. All, that is, except, for the 200 or so Americans shipped over by the California Department of Transportation and the contractor to offer technical guidance, answer questions and inspect the finished pieces. The inspections were necessary when initial checks found as many as 65 percent of the welds failed to meet specifications. Viewed another way, it's the kind of on-the-job training that erstwhile U.S. workers do not receive and that American business, mesmerized by the potential of 1.3 billion Chinese consumers, trips over itself to give China.
At a time when 25 million Americans are unemployed, underemployed, working part time because they cannot find a full-time job, or so discouraged they gave up looking for a job; when millions are out of work for the longest period in our history; when millions are in the process of losing their homes because they were unable to keep up with mortgage payments after corporations eliminated their jobs or they were forced to absorb runaway medical bills, California provides work to thousands of Chinese laborers building components of a bridge in China to be shipped to California and assembled there like an old-fashioned Erector set.
Made in China, assembled by iconic American firm
Once the pieces arrive, they are put together by the American Bridge Co. of Coraopolis, Pa., which once upon a time erected the biggest and most striking bridges and buildings everywhere. It was a creation of John Pierpont Morgan, the financier and 19th-century architect of mergers and acquisitions, who brought together 28 of the country's largest steel fabrication and construction companies in 1900 to form American Bridge. A year later, it became a part of U.S. Steel Corp., created when Morgan acquired Carnegie Steel from Andrew Carnegie. The company even got its own town near Pittsburgh, appropriately named Ambridge, where its namesake once employed more than 10,000 people — and now none.
The American Bridge imprint can be found not only on the country's most dramatic bridges — including San Francisco's Golden Gate Bridge and New York's Brooklyn Bridge — but also on some of its best-known office towers, among them the Woolworth and Chrysler buildings in Manhattan, as well as huge manufacturing facilities, like the General Motors assembly plant in Lordstown, Ohio, one of the world's largest. But all that was back in the days when the company made the steel and did the fabricating, when the imprint really meant "built in America." That was not — and is not now — jingoism. It's jobs — giving jobs to people here who desperately need them.
How did a landmark bridge project in America — one that presented serious engineering challenges, the kind that was once the staple of American manufacturing — end up in the mills of Shanghai?
amygdala imagery/istock photo
The Bay Bridge, connecting Oakland and San Francisco, is being built in steel mills in China.
The story starts in 1989. The original bridge was severely damaged that year in the Loma Prieta earthquake, centered about 56 miles south of San Francisco. (Monday will be the 22nd anniversary). The quake killed 63 people, including a motorist on the bridge when one section of the roadway collapsed on another. The bridge, which carries nearly 300,000 vehicles a day — it's the nation's busiest toll bridge — was described as "unstable" and closed a month for repairs. Drivers have been living on borrowed time ever since. Geologists forecast a 50 percent chance of another major earthquake in the San Francisco area and engineers warn the next one could result in "catastrophic failure."
After years of wrangling over the design of the replacement bridge and how it would be paid for (mostly tolls), local and state politicians finally agreed on a unique self-anchored suspension bridge with a tower rising to the height of a 52-story building in the center. That's the part of the bridge that will be memorialized by a "made in China" label.
It's known locally as the East Span Project, or more formally the San Francisco-Oakland Bay Bridge East Span Seismic Safety Project (SFOBB). It consists of two separate parallel road decks, each carrying five lanes of traffic, one east-bound, the other west-bound with shoulders.
Project had 'pro-China tilt' from outset
From the start, there was a decidedly pro-China tilt to the project. Then-Gov. Schwarzenegger had urged the Chinese to submit their own bid, but in the end they decided to partner with American Bridge and Fluor Corp., the U.S. joint venture that ultimately won the contract.
That worked out well because Robert H. Luffy, the president and chief executive officer of American Bridge, also favored the Chinese. In the past, he had worked with Korean and Japanese steelmakers, among others, and found the Chinese to be cheaper. He also didn't believe any U.S. companies were capable of handling such a big job. As he explained to a congressional subcommittee during a 2007 hearing:
"The largest steel fabricating facility in the United States for bridges ... is probably 300 or 400 people on the floor working. I was in a facility that is going to fabricate the steel for the Oakland Bay Bridge ... They have 32,000 people in that facility. It is not even a contest. It is not even a contest."
The United States admittedly was not the steel power it once was. Years of allowing low-cost, government-subsidized imports from abroad had decimated American steelmaking. A succession of U.S. Congresses and administrations from both parties occasionally complained about "unfair trade practices." But the complaints always fell on deaf ears as neither Democrats nor Republicans had the backbone to do anything substantive about them for fear of antagonizing our trading partners. Consequently, the once powerful steel industry slowly shriveled.
But that didn't mean the United States was incapable of producing steel for the Bay Bridge. Only unlike in the past where one company — such as Bethlehem Steel — could have made it, the job now required a consortium of companies. And that consortium could have been possible if there had been the slightest encouragement and assistance from policymakers in California and Washington.
American firms were eager to bid
Oregon Iron Works in Clackamas, Ore., was ready to be part of that consortium. Tom Hickman, vice president of Oregon Iron, said a group of Oregon steel fabricators were ready to build a new plant to manufacture girders for the Bay Bridge. "We put together a group that was willing to put up $30 million to build a new facility on the Columbia River," he said. In what Hickman said could have been "really a countrywide effort," other parts of the project could have gone to steel mills in Illinois, Indiana and Pennsylvania. The contract, he said, could have provided jobs for fabricators, plate makers, drivers, material handlers and others. "The chain of events goes out everywhere and probably would have affected almost every state," he said.
Nevertheless, everything pointed to the Chinese getting the contract. The California Department of Transportation (CALTRANS) seems to have bought into the argument that it was easier and cheaper to go with the Chinese. The cheaper argument, even though it would later turn out to have been a fallacy, always plays well with American politicians and bureaucrats in the beginning, even if it doesn't work out that way in the end. They count on the short-term memory loss of the country's voters.
After the contract was awarded, problems surfaced in the quality of the welds being cast in Shanghai. To oversee this work, CALTRANS dispatched 200 engineers and contractors to China to monitor the quality, adding further to the cost. CALTRANS later concluded that the welds were safe and that its inspection firm had been too rigid when it interpreted welding standards. The company was dismissed.
The new Bay Bridge was, without a doubt, a daunting engineering and manufacturing challenge. But the sheer daring and the unknowns involved in such a revolutionary design is something the American bidders may well have factored into their original bid that their Chinese opponents overlooked or ignored.
'Savings' don't tell whole story
Schwarzenegger justified awarding the contract to China on the basis of numerous savings he claimed it would produce. By his count, he saved $400 million for his state when the contract went to Shanghai. That did not take into account the wages lost by steelworkers and ironworkers who otherwise would have been employed on the project. It did not take into account the taxes those workers would have paid — from California income tax to Social Security and unemployment taxes. It did not take into account the multiplier effect, all the related benefits derived across the economy from the daily purchases made by people with jobs. It did not count all the state and local taxes that employed workers pay for schools and highways. Nor did it take into account all the tax revenue that California and local governments had to expend for unemployment, health care and other costs run up by people who have no jobs. In short, what may look like a "savings" is anything but.
What it may ultimately cost is anyone's guess, although some estimates put the figure for the entire project, including interest, at $12 billion. What's clear is that the United States lost an exceptional opportunity to create good-paying jobs at home during a time of high domestic unemployment.
"If that investment could have been made here (U.S.), it could have provided jobs here," said Oregon Iron's Hickman. "These jobs are living-wage jobs and family-wage jobs. They provide health and welfare benefits, 401(k)s and pensions. Our facilities meet all of the environmental requirements, and it just is a very, very difficult thing to compete with the Chinese when you are really competing with the Chinese government." Or, in the case of Oregon Iron and other domestic producers, competing against their own government.
The contrast between the actions of policymakers who built the original Bay Bridge and today's politicians could not be greater. Construction started and ended during the Great Depression, providing desperately needed jobs, with financing arranged by a new government entity created to boost employment — the Reconstruction Finance Corp. (RFC).
By creating jobs for Chinese steelworkers, today's politicians are making it all but certain that the American steel industry will get even weaker. If it is an industry in which no one company today is capable of doing the work itself, then after another Bay Bridge or two, not even multiple U.S. companies will be able tackle such undertakings. The blue-collar workers will be followed out the door by the white-collar professionals, the engineers and draftsmen, as is already happening.
This is occurring despite the existence of "buy American" laws governing major construction projects. The problem, as always, is Congress made compliance optional. If contractors wanted to buy American they could. If they wanted to buy from China or any other government that subsidizes its corporations, they were free to do so. Lawmakers had not been the least bit serious when they drafted the legislation.
That's what made Schwarzenegger's words in Shanghai all the more poignant. Any number of American workers would have loved the chance, as the governor put it on the factory floor, to weld, paint, lift, design, ship and all the other chores required to help California rebuild its Bay Bridge. But they were not given that opportunity. Nor, in all probability, will they in any similar undertaking in the future. U.S policies are in such disarray that politicians would rather create jobs for people in China than for American workers, even when unemployment is off the charts. To be sure, when the bridge contracts were originally awarded unemployment was much lower than it is today, a little more than half the current 9.1 percent national rate, or the much higher California rate of 12.1 percent. That's another major defect in Congress: Lawmakers are indifferent toward working people in what would appear to be good economic times, even when the appearance is an illusion.
Other public works jobs outsourced to Chinese firms
So is San Francisco's Bay Bridge an aberration? Only to the extent of its size. Chinese companies are at work everywhere in America, even securing special visas to bring people into the country.
China Construction America Inc. (CCA) built the Lake Marion High School and Technology Center in Orangeburg County, S.C. CCA is a wholly-owned subsidiary of China State Construction Engineering Corp. Limited, a publicly listed company in China. One reason the company won the contract: South Carolina is a right-to-work state, making it an easier place from which to branch out. CCA also has built several other high schools in South Carolina.
The same Chinese company built a multipurpose convocation center at the University of South Carolina Aiken. The 100,000-square-foot facility, with seating for 4,000, hosts campus and community affairs, from graduation ceremonies to basketball games, from dance marathons to freshman-orientation programs. The new modern train station at Yankee Stadium with its twin 10-car platforms, 10,000-square-foot covered mezzanine and 450-foot overpass with elevators and stairs? That too was built by CCA.
The Chinese company also is working on a $400 million facelift of the 1,485-foot Alexander Hamilton Bridge that crosses the Harlem River and connects the Bronx with Washington Heights in Manhattan. It's the largest construction project undertaken by New York State's Department of Transportation. It's expected to be completed in 2013.
But at least many of these jobs are filled by Americans, albeit working for Chinese companies. Such is not the case with another manufacturer that is gradually moving its operations to China.
The Boeing Company, the aircraft manufacturer, employs more than 6,000 Chinese in China, where they make parts for essentially every Boeing plane. The China Aviation Industry Corp., for example, produces components and parts for the Boeing 737, 747, 767, 777, and the 787 Dreamliner.
Earlier this year Boeing announced that the company and one of its Chinese venture partners would expand an existing composites production plant in Tianjin, adding 300 jobs and bringing total employment to 1,000. "It is win-win cooperation," said Ray Conner, vice president and general manager of supply chain management and operations for Boeing Commercial Airplanes. "Our Chinese partner will provide high-quality components to increase Boeing's capacity, which in turn boosts our employment in China."
That was just after Boeing announced it was terminating 900 jobs in Long Beach, Calif.
Not to worry. China Construction America hopes to enter a public-private partnership to design, build, and operate a high-speed rail line in California — if the terms are right.
The Investigative Reporting Workshop's What Went Wrong Project Editor, Kat Aaron, and reporter Michael Lawson contributed to this report.