A lack of government support at a time when their main foreign competitors had plenty of it.

In 1960, both Japanese and American steel companies needed more than 20 worker hours to produce 1 metric ton of steel. By 1970, Japanese steelmakers had cut this cost down to 7.5 worker hours on average, while American steelmakers still needed 15. The collapse followed shortly after. In 1973, US steelmakers were still producing 111.4 million tons. By 1978, this figure had dropped to 97.9 million, while steel imports had ballooned to 24 million.

Japanese steelmakers were able to boost efficiency so quickly solely because of state support. In 1952, the Ministry of International Trade and Industry designated steel a 'strategic sector', meaning all its domestic sales, all its imports, and all profits from its exports were tax exempt. Just as importantly, it would benefit immensely from the bureaucracy's 'administrative guidance'. Effectively controlling private banks through selective discharge of Bank of Japan reserve funds, the bureaucracy channeled low interest loans towards the steel industry, provided the industry with cheap and sometimes free land, and dredged harbors specifically for steelmakers so they could place their factories dockside, significantly reducing transport costs.

In parallel, the Japanese bureaucracy did whatever it could to increase the supply of credit so there would be plenty for 'strategic sectors' to borrow. The Bank of Japan gave each private bank a waku (loan quota) which was usually much higher than its managers were willing to risk. MITI had sole control over the sale of large sums of foreign currency, and used this power to restrict the import of foreign technology, preventing current account deficits (and making IP theft all but inevitable). Finally, the diet voted for tax writeoffs for anyone depositing in the state-run Japan Postal Savings Bank, providing the state with the single largest capital reserve in the world (by 1980, the JPSB was three times the size of citibank).

To ensure this money and privilege would be well used, Japanese regulators revised business law to defang the power of shareholders. This left corporate management with only two goals; beat interest rates, and keep the government happy. To prevent "excessive competition", the bureaucracy also set production ceilings for each firm.

With an endless supply of capital, state-provided cost advantages, no need to care for their owners, and a ceiling on how much they could produce, Japanese steelmakers did the only thing that could increase their profits in the long-term: tear down their plants and rebuild them with every technological change. For the Bank of Japan to approve a 'reconstruction loan' (it approved all loans, as private banks submitted each request to the government), the required increase in output was only 10%. This meant that Japan's largest steel mills were being demolished and rebuilt from the ground up every 5-10 years for only marginal increases in productivity. They were at the cutting edge of technological advancement, and their floor plans were optimal.

In the American steel industry, in contrast, the main mode of modernization was 'rounding out', or the replacement of the oldest and most unreliable machines within a plant, usually with no changes to the floorplan. This was the method of modernization that produced the highest short-term return on investment, but in the long-term doomed the industry to technological stagnation. American steelmakers likely would have adopted the more ambitious "raze and rebuild" approach if they could, but, due to a mix of labor pressure, management corruption, and a total lack of government support, they lacked the resources.

In the aftermath of the Great Depression, the US government broke decades of uninterrupted support for business interests in labor disputes by passing the National Industrial Recovery Act. The act, among other measures, created the National Labor Relations Board to mediate labor-management disputes, and all but ensured that management would be forced to engage in collective bargaining with workers, stripping owners of many of the coercive powers they could use to suppress unions before (such as threatening to fire anyone who supported the formation of a union). For the next four decades, the NLRB helped create a high-wage equilibrium that historian Jefferson Cowie called 'the Great Exception'. Flanked by eras of high corporate profits but stagnant worker incomes both before and after the period, the 1933-73 period was an outlier in American economic history, involving the very opposite.

Unable to suppress unions but still beholden to shareholders who demanded short-term profits, management's interest was to solve labor disputes quickly, and enrich themselves in the process. The Great Exception in the steel industry involved a constant cycle of labor demanding revisions to wages and industrial management timetables (i,e. the number of seconds shoveling 3 pounds of coal was supposed to take), and management quickly granting their requests along with a blanket raise for all employees, themselves included. Shareholders were powerless to stop this cycle because of the NIRA's rules.

The destructive effect this cycle had on steel profits led bitter steel executives to blame the unions for the industry's collapse, a talking point quickly adopted by right wing American pundits. Critically, however, unions were only 1/3 of the cycle, with the other two players being the NLRB and corporate management. Neither of these entities had the best interests of the company at heart, with the NLRB seeking quick resolutions for political stability, and management seeking to line their own pockets - something which was only possible if they caved in, not if they stared the unions down.

American economic historians often cite the above, more nuanced interpretation of the collective bargaining cycle as the primary reason for the steel industry's collapse. In reality, however, the cycle was of only secondary importance in the industry's decline. The formation of American “Rust Belt” mirrored similar downturns in the European steel industry, all of which were egged on by the meteoric rise of Japanese steel. At the end of the day, this was not a fair fight. Even with perfect labor-management relations, American steel had no hope unless Washington was willing to provide the same level of support as Tokyo.

The US government attempted to protect the industry, but did so in a characteristic and ineffective way: restricting imports. The 1970s and 80s saw repeated restrictions on imports in the steel sector and others suffering from Japanese competition, which eventually escalated into a full blown trade war. The US government was not willing, however, to foot the bill for the modernization of the sector, so the basic problem remained unsolved.

Sources:

Johnson, Chalmers. MITI and the Japanese Boom.

Cowie, Jefferson. The Great Exception.

Libermana, MB. Comparative productivity of Japanese and US Steel Producers, 1956-93.

Hoerr, John. And the Wolf Finally Came: The Decline of the American Steel Industry.

Hopefully the answer I’ll give is okay, since it does focus on the deterioration of one specific steel company throughout the last decades of the 20th century. However, sometimes looking at specific micro-level events and issues can be illustrative of a more general phenomenon.

Bethlehem Steel Company in Bethlehem, PA was one of the major players in the steel industry, and as a result, it enjoyed huge profit margins through the mid-20th century. Some of these profits were used to invest in acquiring new steel plants throughout the Rust Belt, some were used to line the pockets and fund the lavish lifestyles of executives, and comparably fairly little was used to effectively research and implement new steelmaking technology. Despite its status as a significant manufacturer in the 20th century, Bethlehem Steel Corporation (BSC) was bankrupt by 2001, and fully dissolved by 2003. Many of its plants throughout New York and Pennsylvania had closed long before that point, many in the 1980s, leaving former steel towns to essentially waste away.

One factor, like your father believes, was the influence of unions. Unions were great in some ways, particularly in terms of ensuring that steelworkers were paid adequately and were afforded working conditions that were as safe as possible in the very dangerous steel plants. But BSC’s union negotiated policies that ended up negatively impacting the company to varying degrees. BSC’s union negotiated very high wages for steelworkers, complete with automatic annual wage increases and cost-of-living adjustments built in to workers’ pay schedules. By 1982, steelworkers were earning $26.12 per hour (equivalent to just over $70 today), which was a rate much higher than foreign steelworkers’ pay and nearly twice the average U.S. manufacturing wage. As a result, BSC simply couldn’t compete with cheaper foreign steel imports amidst the high wages they had to pay their workers. Individual workers also filed petty union grievances fairly frequently in some plants, particularly in BSC’s Lackawanna, NY plant, to the point that overwhelmed plant managers found it easier to just pay workers for 4 hours of work per grievance rather than fighting especially petty issues through formal procedures.

Perhaps even more important in BSC’s decline was the inclusion of “Clause 2B” in the union’s contract every 3 years when it was renegotiated. This clause stated that labor practices could not change without a change in “underlying conditions.” The vague clause was often interpreted advantageously by the union, which used it to retain more employees than were necessary to complete work in steel plants (known as “featherbedding”). Once a position was established as a “past practice,” the union often refused to concede the position even in the case that it was rendered obsolete by technological innovations. Supervisors also padded their payrolls to ensure that there were enough workers in peak output periods, but the union’s adherence to Clause 2B ensured that even in leaner times, these workers would still be paid and on-the-job.

Another factor in the company’s decline was the opulence of BSC executives and corporate practices. These executives were paid incredibly handsomely; in 1959, for example, BSC executives enjoyed 7 out of the 10 spots on Business Week’s list of the highest paid executives in the U.S. BSC built 3 lavish golf courses throughout the 1950s and 60s solely for its executives (one to start, and 2 more to cut down on wait times at the first and then the second course), plus two more for other BSC workers and the general public. In 1972, the company built a $35 million tower for its headquarters, which was designed as a cruciform solely for the purpose of creating more corner offices for the overbloated executive staff and the many Vice Presidents in the company. The company’s salaried staff also generally enjoyed around 2 months of paid vacation each year. This all, of course, occurred when times were good for the company, before BSC went into decline—however, this corporate opulence established an unsustainable pattern of spending which the company simply couldn’t upkeep through the decline of American steel that occurred later.

In addition, BSC’s executives were an insular group. Innovation in management was not prized; instead, seniority and an individual’s strict adherence to the rigid and hierarchical corporate culture at BSC led to promotions and high salaries. This was especially true due to the oligopolistic grip that steel had on the U.S. market: instead of innovating, steel executives could just raise prices seemingly at will to maintain large profit margins (and to maintain the corresponding bonuses they received).

Along the lines of innovation, BSC didn’t do much. They built a $10 million research center in 1961 in Bethlehem, headed by a Bethlehem Steel Vice President who never completed college; not much got done there. Some progress was made by the scientists and engineers who worked there, but executives chose not to implement many of the innovations proposed by the scientists—after all, Bethlehem was on the top of its game and seemed to be untouchable; why spend money improving manufacturing processes?

Meanwhile, smaller steel corporations began to adopt new techniques. Steel making companies outside of the U.S. began to adopt methods like continuous casting, which allows for cheaper and better quality steel production. After building a pilot plant to test continuous casting, Bethlehem executives decided to abandon the project because it appeared not to be adaptable to high volume production required of the company. Japanese steelmakers, however, successfully adapted the practice to large volumes of steel shortly thereafter. As a result, Bethlehem executives agreed to test out the technology—but against the recommendations of middle managers, only in their overcrowded Johnstown Steel Plant since it was a sentimental favorite of the Board of Directors. The $10 million construction was completed 90% of the way when (predictably) they discovered that the plant couldn’t accommodate the new caster, and the company abandoned the project. None of BSC’s plants had a continuous caster until the 1970s, at which point non-U.S. steelmakers were benefitting from the lower production costs of continuous casting—and were already exporting their steel to U.S. companies, thereby cutting into the market share on steel manufacturing that U.S. companies like BSC had traditionally possessed.

This occurred a lot—well-established companies like Bethlehem Steel had expensive, more traditional methods of manufacturing steel. These methods worked well for them, but innovation in a market is important, and BSC simply failed to innovate. After all, it had paid a lot to implement new technologies back in the 1950s and 60s (especially implementing basic oxygen furnaces by 1964, which were implemented in U.S.-based steel plants like BSC plants later than in non-U.S. plants). Why pay even more to keep up with technological innovation when what they already had was working just fine? Newer, smaller companies, in contrast, didn’t have that same problem. Without substantial pre-existing investment, companies abroad and domestic companies like Nucor that manufactured using steel minimills were able to adopt newer technologies to steelmaking practices.

So Bethlehem Steel was plagued by expensive union woes; an insular, overbloated, and overpaid executive “class”; and a lack of innovation in its steel plants. Perhaps the most significant factor was the deterioration of the wider U.S.-based steel industry that occurred in the 1970s and beyond. Cheaper production costs abroad led to U.S. companies importing cheaper steel. These cheaper foreign production costs came about in part due to high labor expenses in the U.S. brought on by union payscales, as well as the technological innovations adopted by foreign steelmakers, many of which benefitted from government investment in the respective nation’s steel industry. Steel was being imported, and even though in 1984 BSC President Donald Trautlein attempted to force the U.S. to impose protective quotas on steel imports, President Reagan instead negotiated individual, voluntary agreements with steel-producing nations—which these nations quickly circumvented. This occurred alongside societal shifts that phased steel out of manufacturing during the 1970s: fuel efficiency standards for cars encouraged automakers to move away from steel and towards lighter materials, for example, and the interstate highway building program was basically more or less over by the 1970s (not as many big suspension bridges needed after the program ended). I just saw the other answer to the question after writing mine out, and the commenter gave a far better answer than I did, particularly in outlining the macro-level decline of steel in the U.S. as compared to foreign steel producers.

U.S. steel producers, mainly those like Bethlehem that specialized in integrated plants (as opposed to minimills like those of companies like Nucor), were simply falling behind other producers, both foreign and domestic. Steel plants started to close down as a result: Bethlehem’s Lackawanna plant, for example, closed down in 1982 and with it eliminated around 1/3 of the jobs in the town. Unions played a role, but lack of technological innovation and an inability to compete with foreign steel producers (particularly those in Japan) were perhaps more significant in the decline of steel and the subsequent deterioration of the Rust Belt.

Most of the info here is from John Strohmeyer’s Crisis in Bethlehem, which I would recommend reading if you’re at all interested in the topics I mentioned here.

Bad governance plus a loss of economic dynamism.

It's a popular talking point to say that the United States has undergone deindustrialization. Candidates from both the left and the right love to talk about how good, working factory jobs have gone away. They draw various political narratives, usually with a chosen villain. It's free trade. Or greedy shareholders. Or greedy unions. Or unpatriotic globalists. Or whatever. The economic story doesn't really matter. It just has to be a little plausible and then it can be two stepped into being a reason why we need to have universal healthcare or start a UBI or cut taxes or engage in a trade war with China or... I don't know, invade Mars and execute all the milk farmers. As far as I can tell, the only thing it has in common is that it's invariably what they wanted to do anyway.

The problem with this talking point is that it's not grappling with the phenomenon. Not that there isn't real pain in the Rust Belt or a significant economic shift. There is real pain, undoubtedly. And there has been a significant economic shift. But American manufacturing has only declined in relative terms. It's grown in absolute terms. It also continues to be a steady source of relatively high wage employment for a huge number of Americans. There are specific industries, such as garment manufacturing, that have been largely gone offshore. But overall, American manufacturing has been outperforming the general American economy for most of the past twenty years. Low interest rates are good for the sort of capital intense manufacturing the United States is so skilled at. The jobs did not go away.

Another popular talking point is that it's because of cheap foreign labor or lazy Americans or something along those lines. These are also hugely overly simplistic. It's true that American workers are very expensive. In fact, the American worker, when compared to their equals in terms of experience/education/etc, is the one of the most expensive in the world. But they're also the one of the most productive if taken as total productivity. This a big reason why America still attracts significant foreign direct investment. Hundreds of billions of dollars are invested into the United States to hire workers more expensive than in the home country.

Further, American labor has been expensive historically. The American worker has always been expensive. That title of "most expensive labor force" probably goes back to the late 19th century. And American workers were paid more than comparable workers even in colonial times. This isn't to say that higher wages don't have economic effects: they do and infinitely raising them without concern for economic impacts would be foolish. But if all it took was cheap labor and cheap shipping, the American manufacturing sector would have collapsed in 1880.

Now, you might be asking, if there's no problem why does everyone keep saying there's a problem? Well, there is a problem. Just not that problem. The problem is not the death of manufacturing. The problem is how Detroit can fund its schools.

When you look at urban municipalities in the Northwest, that is where the grim statistics start coming in. Detroit lost almost a third of its population in the last twenty years. Its school system has been hugely backsliding in quality for a long time. There was a bankruptcy. Detroit is one of the worst cases but many nearby cities are doing little better. Even those that are otherwise doing reasonably well, like Chicago, have had their bad social effects. I could make an entire post just listing off grim statistics from Rust Belt cities.

The cities of the Northwest underwent an absolute shellacking from roughly from 1969 to... well, within the twenty year rule anyway. But it wasn't because there were no manufacturing jobs or because the American manufacturing industry died. It was because they left the cities, which caused local governments accustomed to wealthy tax bases to become unsustainable.

Let's start in 1969. The 1969 recession was ultimately more interesting as a precursor than a phenomenon in of itself. It was short and had a relatively quick recovery. However, Keynesian government policy caused higher inflation, which in turn caused higher interest rates. These rates remained even after the recovery. This was bad for capital intense industries, which had a negative effect on manufacturing. Manufacturing did recover, but more slowly than the rest of the economy. This led to temporary holes in municipal budgets which were mostly covered by borrowing. This was all very normal and would probably have been unremarkable if not for what was coming in 1973.

I feel the need to digress into some economics here. Interest rates are the price of money. If someone loans you $10,000 at an interest rate of 12% per annum, they are agreeing to give you $10,000 in exchange for $1,200 a year. That is the price of the $10,000. Manufacturing, particularly American style manufacturing, is capital intensive. You have to spend millions to get the equipment, the building, the land, etc. And the factories need ongoing capital to do things like buying upgrades. The more you have to pay in interest, the less is left over to cover other expenses like hiring workers or buying materials or whatever else you need to do. This means the price of getting that much capital is very important to their health.

The point you need to remember is that when effective interest rates are high, manufacturing becomes less profitable. This means marginal firms (the least profitable) close and the rest of them hire less or otherwise hedge to try and survive lean times.

And guess what happened from 1973 to 1983? Stagflation. The manufacturing sector, wounded by 1969, was also undergoing increasing economic competition. Steel in particular had a price collapse, largely fueled by Japanese subsidies. This was an international rather than American phenomenon. But this was not the first time American manufacturing had faced foreign competition. It had survived the rise of other regions far better than it would weather the coming problems.

1973 hit like a truck. Through 1973 the price of oil quadrupled, there was a huge stock market crash, Bretton Woods collapsed... there's very little to recommend the year economically. Unemployment went up, inflation shot up, and the economy stagnated generally. It was the biggest recession since the Great Depression at the time. And the government lacked the economic toolbox to respond effectively. (I would argue it was the political will too but that's another matter.) When it increased spending without accounting for production, it exacerbated the crisis and caused inflation to increase further. This in turn caused economic damage, which caused unemployment to increase, in a vicious cycle. Interest rates shot up, as they tend to do when inflation rises. High interest rates and declining consumption had a huge negative effect on capital intense industries, especially manufacturing.