Commentary

The Perpetual Steel “Crisis”

This article originally appeared in American Metal Marketon October 23, 2000.

The tired, low dishonesty of another phony steel “crisis” is once again upon us. Sky-is-falling rhetoric, bellicose demands, and strong-arm political tactics - it’s business as usual for America’s most aggressively protectionist industry.

The steel lobby’s latest campaign is proceeding simultaneously along three fronts. First, Senate magician and Big Steel sugar daddy Robert Byrd managed recently to sneak into the agricultural appropriations bill a devilish change in the U.S. antidumping and countervailing duty laws (which impose penalty duties on allegedly unfair imports). Under the Byrd amendment, duties collected under those laws will be doled out directly to U.S. industries. In other words, the steel lobby and other users of the trade laws will actually get reward money from the U.S. Treasury for scalping their competitors and fleecing downstream industries and consumers. This subsidy scheme is a clear violation of WTO rules and an invitation to foreign countries to perpetrate similar mischief against American exports.

Meanwhile, the steel lobby isn’t content with its usual reliance on the antidumping and CVD laws - even with the Byrd amendment’s new, “user friendly” upgrade. The problem is that these laws are limited to knocking off foreign competitors one country at a time. Impatient, Big Steel is now calling for a single, efficient kill shot: a Section 201 “safeguard” action that would simultaneously target all steel imports from whatever source. In a letter dated October 16, 76 steel executives and union leaders asked President Clinton, among other things, to self-initiate Section 201 proceedings. The next day, Big Steel’s friends in the House of Representatives introduced a resolution along the same lines; so far they have rounded up 230 cosponsors.

Finally, while seeking to add new trade barriers, the steel lobby is fighting hard to hold on to prior gains. The U.S. International Trade Commission must conduct “sunset reviews” to determine whether to repeal old antidumping and CVD orders, and the industry has been pulling out all the stops to ensure that those orders remain in place. Back in September, 27 steel country Senators and Representatives showed up at the ITC’s public hearings on the sunset reviews of three categories of flat-rolled steel. This extraordinary political muscle-flexing before an independent regulatory body was meant to remind the commissioners of the ITC who confirmed their appointments and approves their budgets — and to suggest, none too subtly, that they cast their votes accordingly.

U.S. demand for steel is at historically high levels, and shipments by U.S. mills for the first eight months of this year are up 10.7 percent over 1999. Yet the domestic industry claims that imports are threatening its very existence. It’s true that imports have risen recently; meanwhile, a string of Fed interest rate hikes and slowing automobile sales have undercut prices. But the claim that present circumstances amount to a “crisis” cannot be taken seriously.

Actions speak louder than words, and the commercial actions of U.S. steel mills reveal that their import-baiting is just a cynical ploy. After all, U.S. mills are themselves major steel importers: In 1999, more than 7 million metric tons of semifinished steel was imported for use by domestic steel producers to process into finished products. It seems that the only real difference between “fair” and “unfair” imports is the effect on Big Steel’s bottom line. Meanwhile, American steel giant USX just inked a deal to acquire ailing Slovak mill VSZ - despite the fact that VSZ was targeted in a recent antidumping case against cold-rolled steel. So which is it - is foreign steel production an economic threat to America or an attractive investment opportunity? Apparently the answer depends on the audience and the occasion.

The American steel industry is facing some tough competitive challenges. Production costs at U.S. integrated steel mills are among the highest in the world, and there is substantial excess capacity in the United States. But instead of addressing these issues head on in the marketplace, Big Steel is addicted to relying whenever possible on political fixes. More than any other industry, it has systematically integrated the quest for competition-stifling trade barriers into its core business strategy. Any time that economic or political circumstances create an opening, the steel lobby pounces - howling about unfair competition, making dire predictions about the impending extinction of the industry, and demanding that we “stand up for steel” while it stiffs the rest of us.

It is a shameful state of affairs. But it will continue as long as Big Steel wields an effective lobbying monopoly on steel trade issues. Steel-using industries may employ over 40 workers for every one worker at a steel mill, but until now those industries have been out-organized and out-maneuvered. Unless those interests with a stake in open markets start standing up to Big Steel’s bullying, the perpetual steel “crisis” - and its protectionist consequences - will continue unabated.

Brink Lindsey is vice president for research at the Cato Institute