Commentary

Protectionism Hurts Consumers

By Daniel Griswold
This article appeared on Cato.org on February 4, 1999.

Rep. Bob Ney’s Jan. 20 op-ed column, “Steelworkers Betrayed,” which called for protection against imported steel, betrays the interests of most Americans who benefit from lower steel prices.

Despite Mr. Ney’s protests, the system already is stacked in favor of domestic steel producers. U.S. antidumping laws punish foreign producers for engaging in practices that are legal and common in our domestic market. U.S. firms, including steel makers, routinely sell the same product at different prices in different places depending on local conditions, or temporarily sell at a loss in order to liquidate inventories and cover fixed costs.

If every domestic sale were required to be at a “fair” price according to the antidumping law’s definition, most U.S. companies would be vulnerable to government sanction, and U.S. consumers would find far fewer bargains.

Because of the antidumping laws, a huge dose of protection already is working its way into the steel market. Imports from Russia almost have stopped because of the threat of retroactive duties approaching 200 percent, and the Commerce Department is all but certain to announce hefty duties against imports from Russia, Japan and Brazil. Meanwhile, the administration has been browbeating Japan to “voluntarily” reduce its exports to the United States, even though its steel production has fallen to its lowest level in 30 years.

The victims of this war are consumers. If antidumping duties and quotas are enacted, Americans will pay more for a range of products, including household appliances, new construction, machinery, trucks and automobiles. The typical five-passenger sedan, for example, contains $700 worth of steel. If government intervention raises the price of steel by $50 a ton, American steel users will pay an extra $6.5 billion for the 130 million tons they consume annually.

Quotas and duties on imported steel will not “protect” U.S. industry. They will profit only a small sector employing fewer than 200,000 production workers. Higher steel prices will endanger jobs in industries that employ 40 times as many workers as does the domestic steel industry.

Trade barriers won’t save jobs in the steel industry either. U.S. steel mill employment has fallen by 70 percent in the past two decades despite bouts of protectionism. The reason is simple: rising productivity. The integrated steel mills have reduced the number of man-hours needed to produce a ton of steel from an industry average of 10.1 in 1982 to 3.9 today.

Foreign competition has spurred this progress, but the most ruthless competition has come from within our borders, from so-called mini-mills. The more efficient of these smaller mills can produce a ton of steel in fewer than two man-hours and relentlessly are expanding the scope of products they can make. With or without protection, the industry will continue to consolidate and shed workers, with production shifting from the larger integrated mills to the smaller, more efficient (and less unionized) specialty mills.

Given the high cost and low return of steel production, the question is not whether the administration and Congress will stand up for steel but whether they will stand up for the rest of America.

This letter originally appeared in the Washington Post on Thursday, February 4, 1999

Daniel Griswold is the director of the Center for Trade Policy Studies at the Cato Institute.