[Mergers temporarily strengthen labor’s bargaining chip. But in
the long run, anti-monopoly experts say, corporate power crushes
workers and consumers.]
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AMERICAN STEEL’S SUCCESSION  
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Luke Goldstein, Jarod Facundo
September 1, 2023
The American Prospect
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_ Mergers temporarily strengthen labor’s bargaining chip. But in
the long run, anti-monopoly experts say, corporate power crushes
workers and consumers. _

A portion of the Cleveland-Cliffs Cleveland Works is pictured on
August 14, 2023, in Cleveland., Sue Ogrocki / AP Photo

 

“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
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further stating
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it needed to explore all other options on the table. Shortly after,
Esmark, a non-union firm, up-bid Cleveland-Cliffs
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a $7.8 billion offer. But they later rescinded
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bid, in part because of the United Steelworkers’ opposition.

In a letter to shareholders, U.S. Steel has said it has received
several offers
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Esmark. But the Steelworkers are adamant that the union can block any
buyer other than Cleveland-Cliffs, citing a
“successorship” clause
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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
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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
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the company settled and ratified a contract with the union
by mid-October
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Meanwhile, U.S. Steel dragged the same September deadline into late
December
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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
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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
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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
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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
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move because both telecom giants were non-union. Three years later,
T-Mobile recently announced
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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
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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
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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
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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
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And earlier this year, another 300 workers
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a former ArcelorMittal USA plant were laid off.

In its endorsement letter
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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._

_THE AMERICAN PROSPECT is devoted to promoting informed discussion on
public policy from a progressive perspective. In print and online,
the Prospect brings a narrative, journalistic approach to complex
issues, addressing the policy alternatives and the politics necessary
to create good legislation. We help to dispel myths, challenge
conventional wisdom, and expand the dialogue._

_Founded by Robert Kuttner, Paul Starr, and Robert Reich, read the
original 1989 prospectus for the magazine.
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_To learn more about our history, check out this 2015 piece by Starr
and Kuttner
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reflecting on 25 years of politics and change._

_American Prospect, Inc., is a 501(c)(3) nonprofit corporation
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_You can support our mission with a subscription or a tax-deductible
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_Used with the permission. The American Prospect, Prospect.org, 2023.
All rights reserved._

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* Labor
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* unions
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* corporate mergers
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* Steel Industry
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* monopolies
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