AN industrial syndicate on a scale never before approached was launched by Germany, France, Belgium, and Luxemburg when they signed their recent agreement for control of steel production. In its reach beyond national boundaries this agreement marks a new phase of economic relations. It opens great possibilities. Some regard the syndicate merely as a normal result of distress in the continental industry; they question whether that sort of arrangement, born of hard necessity, will live through a period of prosperity. Others look on it as marking a "completely new political and economic alignment in Europe," and consider it "the greatest guaranty for peace that Europe ever had."[i] Whatever the merits of these diverse opinions, the fact remains that this European development has focused attention on the steel industry to a degree certainly not equalled since the formation of the United States Steel Corporation, twenty-five years ago.

It probably is true that iron and steel making was more profoundly disturbed by the events between 1914 and 1918 than any other of the great industries. Not one of the prominent steel-manufacturing countries escaped those disorganizing influences, and when the war ended, the steel industry of the entire world faced the problem of restoring its trade to normal channels and of making up the ground lost by the diversion of steel to purely destructive purposes.

The general situation was well reflected by the opinion of a British expert who stated that at the beginning of 1920 there was "an accumulated world shortage of steel, estimated at not less than 100,000,000 tons." Continental Europe as a whole, he decided, would take several years, perhaps decades, to build up steel exports as great as the pre-war trade of Germany alone. The idea of a great pent-up demand was current in this country as well, although opinions differed as to the actual tonnage which was in arrears. The common notion about the continental European industry was that only slow recovery could be expected.

Year after year difficult problems of economic, financial and political readjustment have continued to stand in the way of satisfying the "world hunger for steel." The total world production, it is true, increased by about 14 million tons between 1913 and 1925, but the whole increase was credited to the steel industry of the United States. For the rest of the world, the demand continued below pre-war figures. The significance of this slow recovery was shown recently by a leading British steel master, when he said: "It is difficult to believe that the world's consumption will overtake the present European capacity for at least five, or even ten years." In the meantime, he argued, excess of production, unless controlled, must weigh heavily on the industry, because the extension of steel plant capacity during the war out-ran the growth of world demand.

The latest available figures, covering steel exports from the great producing countries, indicate, however, that world demand for iron and steel has at last reached a volume about equal to that of the years immediately preceding the war. Whether the demand will continue to expand steadily, is still to be demonstrated. But it is interesting to note that almost at the moment when steel consumption, as measured by world exports, had regained its pre-war volume, the continental European producers were framing their provisions for control of output.

To get a fair perspective of the whole situation, it is perhaps simplest to consider separately the following aspects of the industry: first, the location and extent of world ore supplies; second, production and consumption of steel, including competition in export markets; and, third, international agreement among steel producers.


It is not easy to reach any fixed conclusion as to the tonnage and distribution of world supplies of iron ore. Complete and accurate data regarding mineral resources are lacking for some large parts of the world. There is the further difficulty of drawing a line between "known" or "actual," and "probable" or "potential" reserves. What is "potential" today may be "actual" tomorrow, merely through some advance in methods of mining, handling or smelting the ore, or in response to changing economic influences. Hence there is always a question as to how far estimates of one date have been subsequently modified.

From a survey undertaken eighteen years ago, the total of known supplies was figured to be somewhat more than 22 billion tons, of which all but 2 billions were credited to Europe and North America. A few years later these figures were raised fifty percent by a substantial increase in the known supply for North America, and the addition of a large tonnage not previously credited to South America. That second estimate, in turn, has recently been revised upward, bringing the world total to about 42 billion tons.[ii] According to these estimates, three of the six continental areas are rich in iron ore, while the others are poor. The two estimates, earliest and latest, are as follows, in billions of tons:


  1924 1910
North America 16.3 9.8
Europe 15.2 12.0
South America * 8.2 . . . .
Asia 1.6 0.3
Oceania 0.9 0.1
Africa 0.5 0.1
  * Included with North America in 1910 estimate.  

The real significance of these figures lies in the fact that the known supplies in 1924 were calculated to be fully 90 percent larger than in the earlier year. It may not be reasonable to expect that future estimates will show similar great increases, but one cannot ignore the fact that during a period of fifteen years, discovery and exploration added to the tonnage of reserves ready for use many times faster than ore was being withdrawn for consumption.

In addition to the actual supplies as estimated above, vast potential reserves of iron ore are credited to various parts of the world. The most recent figures on potential reserves, in billions of tons, are as follows: North America, 111.0; Europe, 25.0; South America, 2.0; Asia, 2.1; Oceania, 1.0; Africa, 1.0. If actual and potential reserves are combined, the present outside figure for iron ore supplies of the world is about 185 billion tons, or more than a thousand times the present annual consumption.

This huge quantity of iron ore constitutes one of the most widely distributed of mineral resources, but the greater part of all that is known lies in a few countries, mainly in the northern hemisphere. They rank in the following order, the supplies being expressed in billions of tons:


  Actual Potential
United States 8.0 75.0
Brazil 7.5 . . . .
France 7.0 5.0
Newfoundland 4.0 4.0
Cuba 3.1 12.0
Great Britain 2.2 9.5
Sweden 2.0 1.5
Germany 1.0 3.5
Russia 1.0 2.0
China and Korea 1.0 1.0

Five of the ten are European, but only two are in the syndicate, and these two have less than one-fifth of the world total between them. Other countries not on this list account for only 7 percent of the actual, and 20 percent of the potential reserves.

No two reserves of ore can be compared exactly, ton for ton, in economic value, if for no other reason than the wide variations in the percentage of metallic iron obtainable from the ore. Even inside one country deposits may differ so much that an attempt to calculate the metallic iron content, available for future steel making, is little better than skillful guessing. For actual reserves, however, the percentage of iron in the ores of the several continents may be figured conservatively about as follows: North America, 42 percent; Europe, 35 percent; South America, 55 percent; with the others rather uncertain. An application of these percentages to our figures for the reserves of ore gives about 18 billion tons of metallic iron in the known ore supplies. This figure represents close to three hundred times the present annual output of metallic iron as it comes from the ore. In the last decade, however, an increasing tonnage of steel has come from remelting of scrap, so that, except as lower grade ores were used, the industry has grown without a corresponding drain on reserves.

But the extent of ore reserves is no index of how the various countries rank in ore production. Some of the chief producing countries are among those with comparatively small reserves, while others rich in supply have yet to figure in important production. Though annual reports on iron ore output have been gathered for at least two-score countries, the following ten have consistently been the major sources, as shown by their dominant share of output in 1925, expressed in millions of metric tons:


  1925 1913
United States 62.9 62.5
France 35.7 21.9
Great Britain 10.3 16.3
Sweden 8.2 7.5
Luxemburg 6.7 . . . .
Germany 5.5 (est.) 28.6
Spain 4.4 9.8
Russia 2.1 . . . .
Algeria 1.8 . . . .
India 1.4 (1924) 0.4

Seven of the ten are European, with an eighth essentially so; and three of them, which are in the international syndicate, account for close to a third of the world total. In fact the rate of production is heavy enough to exhaust the known reserves of these three in less than two hundred years. The minor countries had a combined output of ore about equal to that of Great Britain alone, although they control close to half the world's reserves of iron.

So far, at least, there has been little need for steel making countries to go far afield for iron ore. Great Britain has more than any other country depended habitually on outside sources; about half its yearly supply has been drawn from Spain, North Africa, Sweden, Norway, and Newfoundland. From these same sources has also come ore to other European steel makers, notably to Germany since 1918, and in small amounts to the United States. Yet only a small part of the huge annual output gets into overseas commerce, probably not more than 12 to 15 percent, and most of that moves on short routes in European waters. Excepting Great Britain, perhaps, none of the great steel making countries would be crippled by having its sea-borne imports of ore cut off more or less indefinitely.

All these facts taken together help to explain why, with a single exception, a desire for the possession of iron ore deposits has not figured as a major issue in international politics. The conspicuous exception is the Lorraine area, where the relation of the iron deposits to coal fields and their location along an international frontier raised the question of control to a place of prime political importance.


An available ore supply is only one factor in the development of an iron and steel industry. Belgium, for example, has a flourishing industry, though she has insignificant reserves of ore. Brazil, on the other hand, stands among the countries richest in actual reserves, but she makes practically no steel. Among other factors, the most important is an available supply of suitable coal; market conditions, labor supplies, financial and political considerations, follow after. Ore and coal often have been regarded as more or less fixed in their influence on the industry of any one country, while markets, labor, financial and political conditions were thought of as variables, always subject to changes which might affect the steel industry. It is doubtful, however, whether any of the underlying factors should be called fixed, because progress in the metallurgy of iron and steel tends always to modify the previous relations of ore and fuel.

On the whole, coal and markets have determined the growth of most steel making centers, but in some cases national policies of fostering or protecting the industry have also exercised a powerful influence. It is largely for these reasons that the chief coal mining countries are the great producers of iron and steel. Fuel oil may be a factor in supporting some smelting operations, but not in the steel industry. And the application of the electric furnace to steel making is still a long way from figuring heavily in total annual tonnage. For the near future, therefore, the important steel making countries are likely to remain the same as they have been. This does not mean that the industries which recently have sprung up in various parts of the world are doomed to fail. Nor does it mean that steel making may not be undertaken profitably in places where it does not now exist. But it does mean that no country now outside the group of first rank producers has much chance to force its way into that limited company.

Prior to 1910 world production and consumption of iron and steel had grown so fast that each decade for almost a century had shown about a 50 percent increase over the decade preceding. Had this rate of growth continued, it would have meant a production close to 100,000,000 tons by 1920, and nearly 150,000,000 tons by 1930. Actual performance, however, has fallen far short of those figures. The high mark reached so far was in 1925, with about 89,000,000 tons of raw steel. The following figures, in millions of tons, show how the chief contributors to this total ranked, in output of raw steel, in 1925 and in 1913:


  1925 1913
United States 45.4 31.8
Germany 12.5* 17.6
France 9.0* 4.6
Great Britain 7.5 7.6
Belgium 2.4 2.5
Luxemburg 2.0 1.2
Others (est.) 10.0 9.2
  ---- ----
  World Total 88.8 74.5
  * 1925 figures are for Germany's present area, and for France including Lorraine and Saar.

Five of the six leaders are European, including all four members of the new syndicate, which together account for a little less than 30 percent of the world total. The change in the world total is due to the United States alone. In detail, of course, there has been an important change in the relative position of France and Germany, the former having gained substantially at the expense of the latter. But if production within present areas is compared, figures for the two years show little change. One of the chief results of the altered status has been to put the leading European producers -- Germany, Great Britain, and France -- more nearly on an equal footing.

Among the numerous second-rank producers some changes must also be noted. Fairly important pre-war steel industries in Russia and in Austria-Hungary now appear, in part at least, under other labels, notably those of Poland and Czechoslovakia. Several countries, not previously makers of steel, have developed the industry chiefly since 1913. The notable examples are India, Japan, Australia, and China, because in times past they were reckoned among the best of the neutral or export markets. But with production for the four rising to 1.5 to 2.0 million tons a year, their "neutral" quality is correspondingly reduced.

So far as one can see, this ranking of countries will hold good for a fairly long time to come. If infant industries in outlying countries could make no more headway when steel was scarce and its production highly profitable, they are unlikely to find the way to future expansion an easy one to follow. Bounties and tariffs may succor them in a small way, but it is practically certain that the new countries, including India, China and Japan, have no economic basis for creating a first rank industry.

Although output has not grown beyond the 1913 level, except in the United States, capacity to produce steel is considerably greater. In fact, war-time expansion was so large that excess of steel making facilities has been a source of weakness since 1918. The United States alone has made much progress toward reducing that excess; here the steady growth of domestic consumption has about taken up the slack. The leading European producers, however, continue to suffer from the effects of over-expansion. All of them have producing capacity much beyond domestic needs, and so far, at least, they have been able to employ only part of the surplus in the production of steel for neutral or export markets.

According to commonly accepted estimates, the following figures (in millions of tons) indicate: first, what the principal countries could turn out in raw steel (i.e., ingot capacity) annually; second, their post-war high level of production; and, third, the approximate share of surplus capacity.


  Ingot Production 1925 Surplus
  Capacity 1925 Capacity
United States 50.0 45.4 4.6
Germany 17.0 12.5 4.5
United Kingdom 12.0 7.5 4.5
France (including Saar and Lorraine) 11.7 9.0 2.7
Belgium 3.5 2.4 1.1
Luxemburg 2.5 2.0 0.5
     Total these six 96.7 78.8 17.9
     World Total 110-112.0 89.0 21-23.0

For the chief European producers these figures show 25 to 35 percent of capacity as superfluous when measured against 1925 production. The demand for steel outside the United States last year was about 44 million tons. To supply this tonnage five European countries could marshal a capacity of fully 46 million tons, while the second rank countries, also helping to satisfy that demand, added a capacity of at least 15 million tons more. In short, the high mark of world production, at 89 million tons of steel, is to be compared with a world ingot capacity of not less than 110 million tons.

How to bring this excess capacity to bear on the accumulated shortage of steel, how to translate world hunger for steel into actual sales contracts, has proved to be a most difficult problem. The United States solved its share of the problem largely by sharp expansion of internal consumption, following the shake down of 1921. For United States steel makers the domestic market always has been paramount, so that the state of demand elsewhere mattered relatively little. For European producers, however, it is another story. They always needed outside markets. Now, with all the world able to produce much more steel, they are more than ever concerned about the dangers of over-production and keenly alive to the importance of stimulating exports.

Export markets for iron and steel products had been growing rapidly prior to the war. In the peak year, 1913, the total for the first time rose above 15 million tons. Germany was in the lead, with Great Britain close behind, the United States third, and Belgium and France rather far to the rear. Exports in that year provided Germany with a market for about one-third its steel production; Great Britain and Belgium for about one-half; the United States and France for less than ten percent. The changes which have taken place since then are shown effectively in the following figures covering exports, in millions of tons, in 1925 and 1913:


  1925 1913
World exports 15.8 15.7
France 4.4 0.4
Great Britain 3.5 4.7
Belgium 3.1 1.5
Germany 3.0 6.4
United States 1.7 2.7

The European share of world exports, which was more than 80 percent before the war, was nearer 90 percent in 1925, and the members of the continental syndicate held two-thirds of the total.

A large part of the flourishing pre-war trade, close to two-fifths, was intra-European, with some heavy tonnages moving from one to another of the steel making countries themselves. Another important item was colonial trade, -- especially in the British figures. If deductions from the total were made for both intra-European and colonial markets, only 5 or 6 million tons of exports would be left to represent all overseas demand from the so-called neutral markets. In other words, these neutral markets, where no producer enjoyed special advantages, offered an outlet for barely more than ten percent of world production.

Since 1918 there has been little semblance of what might be called normal steel export trade. The wild speculative buying from all quarters of the world in 1920 was followed by extreme stagnation of exports in 1921. Since then labor troubles, especially in Great Britain and Belgium, the collapse of the German currency, the French occupation of the Ruhr, political disorders in Russia and China, the depreciation of French and Belgian currencies, and numerous other influences have sufficed to keep the steel export trade topsy turvy. With some of these influences still operating, it is difficult to say whether the return to a prewar volume of world exports in 1925 was permanent, or only a passing phase of the vigorous unloading at low prices from countries with depreciating currencies. Some of it is hardly to be looked on as lasting, as for example the heavy imports to the United States; and to that extent, at least, the recovery to prewar volume of exports is not on a permanent basis.

There is little reason to expect that European steel consumption in the near future will increase much, if any, beyond the pre-war scale. Some of the former demands on production have vanished; others have declined sharply; none shows much inclination toward vigorous growth. Outside of European countries and their colonies, the pre-war demand of 5 or 6 million tons has grown no more -- perhaps less -- than the capacity to make steel where none was made before. But granting that export markets have been fully revived, demand from that direction still must grow substantially if it is to keep all the added European capacity profitably occupied.

A considerable amount of idle capacity among European producers seems unavoidable -- and, as a result, there is uncommonly keen competition for business in the neutral markets. Such conditions naturally pave the way for some sort of protective agreement among neighboring producers.


The news of an agreement among European steel producers caused much speculation as to the underlying motives. Some guessed that it was dictated merely by the desire for self protection; others saw in it preparations for a war for supremacy in world steel markets. Both these motives may be at work.

Certain it is that a syndicate of German, French, Belgian and Luxemburg steel makers is powerful enough to be assured of self protection, at least against outsiders. The four countries contain the biggest and best combination of closely associated ore and coal supplies in Europe, with reserves adequate for many generations; their steel capacity is nearly a third of the world total, and most of it is compactly placed, probably close to 80 percent of it being within a radius of 150 miles of Coblenz; their output of steel covers more than half of all that is made outside the United States; and their exports amount to nearly twice those of all others combined.

A syndicate on this scale, in a key industry, is bound to interest the world in general. As a force in the steel industry in particular, the syndicate is of special and continuing concern to producer and consumer alike. Only experience can tell what such a force is able to accomplish. In advance one can merely consider what the agreement itself is:

1. The agreement is to run for five years, from April 1, 1926, but any one of the members -- Germany, France, Belgium, and Luxemburg -- may withdraw up to the first of May, 1929.

2. A committee of four, one from each of the countries, will serve as an administrative board.

3. Each country will be assigned a quarterly production quota, the quotas being based on a specified percentage of an assumed annual output, and determined by a three-fourths vote of the committee.

4. The percentages assigned to the respective members may be modified, but only by a unanimous vote.

5. Members of the syndicate agree to pay (monthly) into a common fund the equivalent of $1.00 per ton of raw steel produced.

6. Any country which exceeds its quota must pay as penalty, to the central fund, an additional $4.00 per ton for each extra ton.

7. Any country which falls below its quota will be paid, for each ton short, a rebate equivalent to $2.00 a ton, but this rebate is restricted to 10 percent of the quota. If a country's production remains 10 percent, or more than 10 percent, below its quota for successive quarters, the amount on which the rebate will be paid decreases by 2 percent each quarter, that is it would apply to only 8 percent in the second quarter, 6 percent in the third quarter, and so on.

8. Penalties and rebates are payable quarterly, and after accounts are balanced any sum remaining in the common fund is to be shared among the members of the syndicate, in proportion to their production.

9. Other European steel producing countries may be brought into the agreement, by a majority decision, if a new member enters with its quota based on rate of production attained during the first quarter of 1926.

Other provisions refer to possible grounds for terminating the syndicate, accounting procedure, compulsory arbitration, imports which Germany will take from France and Luxemburg, and various lesser details.

The agreement, as published, fails to cover three important points: actual quotas; division of markets; and price policy.

It is stated, however, that the quarterly quota effective October 1, 1926, is figured on an assumed annual total of about 27.6 million metric tons,[iv] and that the division of this amount was fixed approximately on the basis of each country's rate of operations during the first three months of 1926. German trade papers quote the following percentages which are to be used in figuring quarterly allotments: Germany 43.5; France 31.19; Belgium 11.56; Luxemburg 8.55; Saar 5.20. But these percentages must vary somewhat according to the figure assumed for the yearly total, because the price of Belgian assent was an initial quota of 295,000 tons per month. This concession was made with the proviso that the Belgian allotment would not change, even though the annual total were raised to its assumed maximum of about 30.6 million tons. From these facts it is evident that the general procedure is to set up a theoretical normal output for the syndicate as a whole, and then to subdivide this total more or less according to internal demand plus exports, as reflected by recent operations. On the whole, the use of 1926 operations as the basis for figuring relative shares is less favorable to Germany than to the others, because of the rather slack state of the German industry during the early part of this year.

The real importance of these provisions can be measured only by comparing the initial and the maximum yearly quotas, first with raw steel capacity, and second with actual production in 1925. The following figures, in millions of tons, make such a comparison possible:


      Initial Maximum Percent
  Ingot Production Yearly Yearly of Capacity
  Capacity 1925 Quota* Quota* in Max. Quota
Total 34.7 25.9 27.2 30.1 88%
  Germany 17.0 12.5 11.7 13.0 76%
  France 9.7 7.4 8.4 9.3 96%
  Belgium 3.5 2.4 3.5 3.5 100%
  Luxemburg 2.5 2.0 2.2 2.5 100%
  Saar 2.0 1.6 1.4 1.8 90%
  * Metric tons have been converted to gross tons for convenient comparison.

It therefore becomes clear that the program at the outset does not call for any real curtailing of output below 1925 levels except in the case of Germany. Furthermore, the assumed maximum output would call into use nearly the full producing capacity of all except Germany. It is logical to suppose that the maximum might be raised later on by vote of the syndicate committee, although Germany would be the only one to benefit materially from such action.

The agreement contains nothing definite as to actual division of markets, either domestic or export. It is practically certain, however, that each country agrees to respect the home markets of the others. This condition is implied in the reference to a specified volume of imports which Germany will take from France and Luxemburg, and by reports that each member is pledged not to sell to any other party to the agreement at a price lower than the seller's domestic market level. It also seems likely that some plan has been made or will be made, first, for reserving as much as possible of continental markets to members of the syndicate, and second, for dividing overseas markets or for joint selling in those markets. It is hardly to be expected that the parties to the agreement would continue to be competitors in the full sense, but rather that they would tend to operate as a unit in competition against other countries. There would be more to gain than lose by such a policy. And if that policy led to the elimination of the unfit, among national producers, there would be a desirable gain economically.

Finally, there does not appear to be any direct agreement as to policy on prices either at home or abroad, except as to undercutting as noted above. Real restriction of output inevitably would affect price levels, and the upward tendency of continental quotations during September and October is cited as a prompt reaction to the formation of the syndicate. But so far there is no hint of actually curtailing operations, and that particular advance of prices may just as well have come from other causes, such as the cumulative effects of British labor troubles. Unquestionably one of the objectives, at least of German steel makers, was relief from the low price competition of French and Belgian products. Yet it probably would be fatal to attempt at the outset to establish any definite price schedule. There are enough snags on which the scheme may founder without adding to them deliberately. Outside competing countries fighting for neutral markets would find an established price list a very handy weapon to turn against syndicate members.

Some comments on the agreement have referred to the levy of $1.00 per ton as a device for regulating prices, on the theory that the producers must consider the possibility of losing that payment through the operation of the proviso for rebates on account of under-production. It cannot work that way to any considerable degree, however, for maximum rebates in any one year could not amount to as much as the levy collected on only twenty percent of the quota; and so far as one can see the only other charges against the central fund would be the costs of administration, which would hardly be heavy. The fixed levy per ton is more appropriately to be regarded as insurance against ruinous price cutting. On the face of things, the chief effect on prices is likely to come either through sympathetic influences, or, if control is contemplated, through a "gentleman's agreement." If it is assumed that the syndicate will work for more or less uniformity of steel prices, among its members, perhaps at a somewhat higher level than recent quotations, that policy would be more to the advantage than disadvantage of British and American steel makers. Both these rival units have felt acutely the effects of low-priced offerings from continental mills.

The original scope of the syndicate is perfectly well defined, but the provision for taking in other members has already led to rumors that Austria, Poland, Czechoslovakia and Hungary have expressed both a willingness and a desire to join. In fact, the hope is expressed, especially in German circles, that the syndicate will presently embrace the entire European industry, not excepting the British. The original members have certain economic interests in common, the chief being the long established relation between Lorraine ore and the coal supplies in the other countries. That in itself is a sufficient foundation for the syndicate, and on that ground steel men several years ago predicted some arrangement of this sort. But if the scope is widened the community of interests must be weakened; the chances for disagreement are multiplied many fold; and the problem of administration must become much more unwieldy. The lesser countries, for selfish interests, probably need to be aligned with the syndicate, but it is hard to see why the syndicate needs them.

The success of the syndicate, as a working arrangement for regulating the production of raw steel, must largely rest on the ability of each national industry to control its own members. With many individual producers involved, the formation of strong national syndicates is almost a prerequisite. In Germany this has been done quite thoroughly by the formation of various associations or cartels, like the raw steel cartel, and by a combination covering nearly half the industry, the so-called Steel Works Trust (Die Vereinigte Stahlwerke A. G.). French and Belgian interests are less well organized into powerful national units. Among the countries which might be added to the list, Poland and Czechoslovakia are supposed to have pretty well organized steel syndicates or cartels, but the Czechoslovak group has recently severed its agreement with Austrian interests because of differences over markets. The British industry, on the other hand, is far from being organized on any such basis.

Just how the syndicate will operate, and what it may accomplish, are matters that still lie in the realm of speculation. But taken at face value, it is not the kind of agreement which would be set up if its immediate object were a war for markets on a price-slashing basis. Its obvious purpose is to assure for members of the syndicate their own home markets, and to remove the danger of overproduction flooding Europe, with steel at prices which would leave little or no profit to anyone. This step naturally would precede any effort to reach out for control of markets beyond domestic limits. When the syndicate has shown ability to coöperate successfully at home, it can find plenty of economic inducements to turn its interest toward external markets and the desirability of joint selling for export. All the members must export a large part of their products, if steel making is to be kept up to capacity. But for Belgium and France, at least, it is pretty clear that the way to secure larger export markets is not likely to be found in a hard-fought trade war, where price-cutting is the chief weapon. Their domestic markets are not big and profitable enough to provide sinews for that sort of campaign. It is doubtful, also, whether Germany could afford to follow that course very long. Hence a definite export policy, even to the pooling or division of markets, appears to be a wholly logical development. In that aspect the syndicate opens the possibility of far-reaching effects on the steel trade of the world.

The suggestion that the syndicate may try to drive United States and British steel from neutral markets, and then invade both United States and Great Britain with added volume of imports, is highly fanciful. Certainly no such end is to be accomplished by restricting output and leveling European price quotations upward. At the same time, there is no doubt that the syndicate has embarked on an ambitious program; that it provides a medium which could be made to cover its members' interest in any phase of the steel industry; and that as long as its members can continue to enjoy low labor costs, abundance of cheap coal and iron ore, and a reasonable amount of governmental approval, it can make a considerable stir in world steel markets.

Whether the British industry will join the syndicate is very much of an open question. If that does happen, it almost certainly will be more from necessity than from natural inclination. Some reports, fairly well substantiated, state that British steel men approve the idea in principle, although they are not in a position to join now. Other rumors are current that the British were not in the syndicate because of wide disagreements which arose in the preliminary discussions of quota, the British insisting on 8 million tons a year instead of the 6 million tons which the others were willing to concede. Whether in or out, the formation of the syndicate probably means that British steel makers lose much of their continental markets, which have normally represented about one-fourth of their export trade.

There are numerous good reasons which could keep Great Britain out of the syndicate. The British industry is on a clearly different footing from the continental. Its fuel supply is wholly domestic. Its ore, so far as imported, comes mainly from Spain, North Africa, and Sweden. The industry is far from being well organized; much of it is handicapped by old equipment and uneconomical operations. Its chief overseas markets are largely British Colonies and Dominions, or countries where a large investment of British capital gives British goods a preferred status. Finally, the British industrialist does not incline to cartels and syndicates, but rather to the idea of vertical trusts and complete independence of action. Altogether, these circumstances would make it extremely difficult for the British steel makers to enter the agreement on any basis that would be satisfactory to all parties concerned. It is not inconceivable, however, that the question of self protection might become serious enough to outweigh all other considerations.

For steel makers in the United States the matter of syndicate control over European markets is wholly negligible. Less than half of one percent of the United States production last year found its way to Europe; and all the facts of world steel production and consumption make it plain that Europe cannot be a normal outlet for any quantity of the American product.

Furthermore, it is quite unlikely that members of the continental syndicate can secure any large and lasting share in the domestic steel market of the United States. True, European steel shipments ordinarily can be made to seaboard cities in this country at a freight cost fully as low as that on similar rail shipments from the inland steel centers like Pittsburgh. This condition is especially notable at Gulf and Pacific coast points. It was so before the war. It has recently been rather more conspicuously so, because of the abnormally low prices for European exports. It is always likely to persist, to some extent, even though European currencies become stabilized and world costs and prices once more attain a normal relationship as between different countries. Just so long as bulky raw materials, like cotton, move outward, good ballast material, like steel products, can come back at bargain rates. But the level of freight rates for rail shipments to interior points must limit the competition of steel imports to the seaboard sections of the United States.

It is generally doubted whether steel interests in the United States have been approached in the matter of joining the syndicate, but it goes without saying that they probably are fully conversant with developments to date. As matters stand, there is nothing much for the American industry to gain by joining, and nothing to lose by staying out. An informal, friendly understanding would accomplish for steel makers in this country everything that full membership in the syndicate has to offer.

On the whole, then, the notion that this syndicate is the first stage in a world-wide steel agreement is too fantastic to merit second thought. The chances for a pan-European agreement are not very good, unless dire need drives the British interests to seek shelter under its cover. A pan-continental syndicate is more than probable, if minor differences among the lesser units are not over-emphasized. But expansion of the syndicate can enhance its importance in only a slight degree, unless that expansion includes Great Britain. With British and United States producers outside the agreement, steel consumers in neutral markets have little ground to fear price-gouging by the syndicate.

It is the German ambition to "rationalize business" on an international scale by eliminating unprofitable competition and reducing costs of production. This syndicate may be an unselfish move in that direction, for the ultimate good of the steel industry in Europe, perhaps elsewhere. On the contrary, it may be a wholly selfish scheme to revive as far as possible the prewar economic hegemony, partly at the expense of other countries. The agreement, as it stands, may lead either way. Whether it does or does not inaugurate a "completely new economic and political alignment in Europe," the syndicate, as a purely business arrangement, probably will result in more benefit than injury to the steel industry of the world.

[i] See article by C. K. Leith: "The World Iron and Steel Situation in its Bearing on the French Occupation of the Ruhr," Foreign Affairs, Vol. 1, No. 4, pp. 136-151, for a discussion of the political significance of the industry in Europe.

[ii] Kuhn, O. R.: "Iron Ore Available for United States," Iron Age, Nov. 6, 1924, p. 1204, and "Iron Ore Reserves of Eastern Hemisphere," Iron Age, Nov. 13, 1924, p. 1285.

[iii] Acknowledgment is made to the Bureau of Foreign and Domestic Commerce for generous assistance in securing detailed information about the European steel syndicate.

[iv] Since increased to 29.3 million tons.

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  • WALTER S. TOWER, trade adviser to the American Delegation at the Paris Peace Conference; Commercial Attaché at the American Embassy in London, 1921-24; now trade adviser to the Bethlehem Steel Corporation
  • More By Walter S. Tower