Commentary

Steel’s Deal

This article appeared on National Review (Online) on June 6, 2001.

Have no doubt: The steel industry and its unions have found a friend in President Bush. The White House has rewarded the boisterous steel industry with the launch of a Section 201 trade investigation, which promises to quell import competition. Once again, by summoning its disproportionate political muscle, by badgering congress and the administration, and by deflecting blame for its own state of affairs, the steel industry has the country under its thumb.

All of which will likely lead to quotas on imported steel, while clarifying the administration’s trade policy as shortsighted and protectionist. The Section 201 trade investigation is a major setback for consumers and steel-using producers, who will be forced to absorb higher prices stemming from curtailed supply, and for exporters whose prospects for improved foreign-market access suddenly look more gloomy. After all, which countries would want to negotiate with a government that only talks the talk of free trade?

The steel industry has continuously sought to subvert trade initiatives and U.S. leadership on the issues. It views itself as entitled to the U.S. market and makes little attempt to cultivate markets abroad. A mere 5 percent of U.S. steel output was exported in 2000. With nothing to lose and everything to gain by undermining market-liberalization initiatives, the steel industry’s agenda is clear, as it has been for decades: Exaggerate the stakes, accept no blame, and rabble rouse until you hit pay dirt.

The measures that steel has sought and obtained over the decades include quotas, minimum import prices, antidumping and anti-subsidy duties, and “voluntary” export restraints. These barriers have been erected against broad categories of steel coming from every part of the world for the past five decades, costing American consumers and downstream industries tens of billions of dollars. Steel’s tactics have discouraged investment in new equipment, efficient production processes, and a long-term market strategy, in favor of high-priced lawyers and lobbyists.

And yet, despite all of this involuntary subsidization, much of the industry is incapable of competing on an international scale. The dozens of reprieves that steel has received, at substantial cost to the economy, have yielded no palpable business plan to address the shortcomings that put it on the welfare line in the first place. It has demonstrated nothing short of arrogance and irresponsibility, passing off its problems as our own.

While there is consensus regarding the worldwide over-capacity of steel, neither the domestic industries that rely on steel nor consumers of products containing steel are to blame. Yet they are the losers who bear the brunt of price hikes. Meanwhile, auto producers, appliance manufacturers, and other steel-using industries abroad, which are not burdened with quotas, will enjoy enormous competitive advantages over their U.S. counterparts. Quotas, antidumping, loan guarantees, and taxpayer-supported pension funds — all these interventions prolong the problem of surplus capacity, which is the underlying problem.

Collectively, these protectionist policies conspire to weaken the WTO and agitate U.S. resistance to trade agreements in general. The most notable example at the WTO meeting in Seattle, and again in ministerial discussions regarding the FTAA, was the U.S. refusal to discuss antidumping reform, an issue of primary importance to several of our key trade partners. And the most vocal obfuscator of antidumping reform has been the steel industry, which abuses the law to keep vital foreign sources from dipping into its customer base.

Legislation such as the controversial Byrd Amendment, which disburses collected antidumping and countervailing subsidy duties to domestic petitioners, and the Steel Revitalization Act, threaten the very viability of the WTO. Each of these measures at least borders on WTO-illegality, and will spark yet another international rebuke to U.S. policy. Should the U.S. balk at its responsibilities to bring its laws into compliance, the system will collapse — while consumers suffer the world over.

Daniel J. Ikenson is the associate director of the Center for Trade Policy Studies at the Cato Institute.