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Taffy and toilet paper come to mind when watching flat steel-making at California Steel Industries in Fontana.
Slabs arriving by the trainload are heated and stretched like gooey candy through a series of rolling mills. After cooling, sheets are coiled to look like metallic rolls of tissue before eventually being sold to 200-plus manufacturing customers, who use it to make everything from culverts, grating and steel siding to home heating units, guard rails and railcars.
That economic beehive, and the lucrative nature of CSI jobs, could be affected in unexpected ways by President Donald Trump’s recently announced 25 percent tariff on steel imports.
The stated goal of the tariff – which includes another 10 percent tariff taxes aluminum imports – is to protect U.S. manufacturing. But CSI executives fear it poses a unique challenge to their company. What’s more, if the tariff leads CSI to cut production or raise prices, the cost could spread through the regional economy in the form of lost jobs, lost business and higher consumer costs.
“I do see this as a bunch of dominoes that could topple here,” said Sean Flynn, chair of the economics department at Scripps College in Claremont and a Republican congressional candidate.
“California Steel Industries is a key part of the economy of the West Coast and the Inland Empire,” said Paul Granillo, president/CEO of the Inland Empire Economic Partnership. “For us to be able to grow as a region, for the state to be able to grow, we need the steel that’s manufactured at California Steel and the Inland Empire needs California Steel’s jobs.”
One U.S. steel job supports seven non-steel jobs, according to the American Iron and Steel Institute.
CSI’s plant, which also makes electric-resistance-welded pipe, started in the 1940s as a mill for Kaiser Steel. When the mill shut down, in the early 1980s, CSI took over and today employs close to 1,000 workers with an average salary of $75,000.
According to CSI, the company has spent more than $1 billion on capital improvements at the plant since 1992. The 400-acre complex occasionally serves as a movie set; the “Terminator 2” showdown between Arnold Schwarzenegger’s character and an android assassin was filmed there.
CSI also was instrumental in launching the Industrial Technical Learning Center, a vocational training center located just beyond the company’s main entrance.
Unlike other U.S. steel manufacturers, CSI’s production process relies on slabs of raw material that is imported to the West Coast from overseas. Using American slabs isn’t feasible, CSI executives said, due to lack of domestic supply and geography.
Trump’s tariff could raise CSI’s costs while sparing competitors who don’t need imported slabs. California’s environmental rules and high electricity costs also add extra expenses for their business, executives said.
“Costs keep stacking up that are unusual and unique to California,” said Brett Guge, CSI’s executive vice president of finance and administration. “And now you add these tariffs on top, it gives us a lot of concern.”
Brazil, which accounts for more than half of CSI’s slab imports, is exempt from the tariff until May 1, as are Canada and Mexico. But exempted countries might still face limits on what they can export to the U.S., The New York Times reported.
CSI claims to be the biggest customer by tonnage of the Port of Los Angeles, importing almost two million tons of slabs annually through that port.
Pasha Stevedoring & Terminals makes sure slabs get from the dock to Fontana. The company could lose 60 percent of its business if CSI cuts back on slab deliveries, said David Van Waardenburg, Pasha’s vice president of maritime operations.
Besides employing longshoremen, Pasha also buys specialized forklift equipment to handle the slabs.
“As soon as we heard about the tariff, it sent up a red flag,” Van Waardenburg said.
Another CSI-connected company, CEMCO, which has an office in Industry and another in Northern California, makes steel framing products used in construction. CSI provides CEMCO with galvanized coil and is “an extremely important partner of ours,” said CEMCO President Tom Porter.
If the tariff prompts CSI to cut back production or raise prices, the move “could have a dramatic effect (on CEMCO).”
But even if the tariff touches only CSI, the effect could spread through the region. Any job losses at CSI would be “devastating” to the Inland economy, said Inland economist John Husing.
“The most important issue we face is upward mobility to the middle class for workers who live in the Inland Empire,” Husing said. “This would take away one of the major routes to the middle class.”
For construction projects with set budgets, a surge in steel or pipe prices could force those projects to scale back, said Flynn, who is challenging Rep. Pete Aguilar, D-Redlands, for a San Bernardino County congressional seat.
While the unintended effects of the tarrif could be tough, locally, it’s unclear how the tariff might touch the region it’s aimed to help — the traditional steel making areas of the Midwest. U.S. steel makers aren’t prepared to immediately meet any higher demand that might be spurred by the tariff, forcing customers to pay more in the interim, said Jason Gerlis, managing director of TMF Group USA, which helps foreign businesses looking to expand in North America.
While exempting some countries figures to lessen the tariff’s sting, “you can’t tug on a corner of the spider’s web and not expect those ripples to be felt throughout the system,” Gerlis said.
The tariffs appear to be part of the president’s negotiation strategy, Flynn said.
“My assumption is Donald Trump is trying to get leverage for changes in other parts of trade regimes, and is using steel as something that’s very publicly visible,” Flynn said.
“I also assume he wouldn’t want to start a trade war that would result in massive reciprocal tariffs and a collapse of international trade.”
Husing said no “reasonable economist … would endorse the whole set of policies the president is undertaking on tariffs.” Those policies, he said, “(assume) trade is a zero sum game.”
The steel tariff could hinder the U.S. economy by blunting investment in promising fields, said Gerlis, who describes himself as a “free market economist.”
“You can’t drive a car looking in the rearview mirror and the days of heavy industry driving this country may be behind us,” he said. “It’s better to provide training and alternative careers … I prefer five or six Silicon Valleys in the heartland rather than the focus on steel.”
In the meantime, CSI executives continue to hope the tariff spares their business model.
“We’ve succeeded and we’ve provided good jobs and we want to just keep doing that,” Guge said.
LOCATION: Fontana, on 400 acres of what used to be a Kaiser steel mill.
MANUFACTURES: Flat-rolled steel and electric-resistance-welded pipe.
EMPLOYS: About 1,000 people, about 75 percent of whom live in San Bernardino County.
TONNAGE IMPORTED THROUGH PORT OF LOS ANGELES: About 2 million tons per year
NO. OF CUSTOMERS: More than 200
A glowing steel slab passes though a roughing mill of California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A worker inspects the floor near a finishing mill as steel transfer bars passes though at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
Steel transfer bars process through finishing mills of California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
Brett Guge, executive vice president at California Steel Industries, points to the beveling of an electric-resistance-welded steel pipe as they are prepared to be shipped at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A glowing steel slab passes though a roughing mill of California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
An employee marks a roll of coiled steel inside of California Steel Industries, Inc. steel mill in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
Brett Guge, executive vice president at California Steel Industries, looks over the the steel production in the “roughing pulpit” at the California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A glowing slab of steel emerges from the furnace of California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A glowing slab of steel passes through the finishing mill at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
An employee prepares to change a work roll for the finishing mill stand at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A roll of steel is coiled in a finishing mill at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A fresh roll of coiled steel awaits to be tagged at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
A glowing slab of steel passes through the finishing mill at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
Steam hisses from a roughing mill stand as water is sprayed onto a steel slab passing through the hot strip mill to reduce the slab thickness at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
Brett Guge, executive vice president at California Steel Industries, left, and Steve Martin lead plant protection officer, check the electric-resistance-welded steel pipes as they are prepared to be shipped at California Steel Industries, Inc. in Fontana, Calif. on Thursday, March 22, 2018. (Photo by Watchara Phomicinda, The Press-Enterprise/SCNG)
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