Commentary

U.S. Steel Makers Tough Enough to Thrive Without Quotas

By Daniel Griswold
This article appeared in Bridge News on April 7, 1999.

It is a sad comment on the state of U.S. trade policy that the only “fast track” legislation on Capitol Hill these days is a quota bill.

That measure, which recently zipped through the House of Representatives, seeks to impose curbs on steel imports into the United States. This drive for protectionism is fueled by the belief that rising imports have plunged the U.S. steel industry into crisis.

American steel mills have certainly faced adverse market conditions in recent months. But claims of a crisis that threatens the viability of the industry are wildly overblown.

An examination of the historical record shows that overall industry performance in 1998 was negative only in comparison with the string of banner years preceding it.

While domestic steel shipments dropped slightly in 1998 compared with the record-setting 1997, the 102 million tons shipped last year was still the second-highest total in two decades.

Shipments in 1998 were 20 percent higher than in 1989, the peak of the last expansion, and a whopping 66 percent higher than in the trough of the 1982 recession, according to the American Iron and Steel Institute. That’s hardly the picture of an industry at death’s door.

Not only is the U.S. steel industry strong by the standard of its own past performance, it is strong in comparison with steel makers around the world.

While the steel lobby gives the impression that the output of American mills is being displaced by expanding foreign production, many steel industries around the world are suffering far worse than our own. The Japanese steel industry sank to its lowest production levels in 30 years last year.

With world steel output falling, the U.S. producers’ share actually increased to 12.6 percent last year from 12.3 percent in 1997.

Although earnings fell from the previous year, most domestic steel companies continued to operate profitably in 1998. Of the 13 domestic steel makers with annual sales of more than $1 billion, 11 posted operating profits in fiscal 1998.

Even in the fourth quarter of 1998, in the depth of the supposed crisis, nine of the 13—including anti-dumping advocate USX Steel Group— posted net profits. Major American steel producers enjoyed combined profits of more than $1 billion in 1998.

The steel companies and their unions point to the 10,000 jobs lost in the past year as proof that emergency action is needed. Statistics do show a decline in steel-sector employment of roughly 10,000 workers between January 1998 and January 1999.

But there is no evidence to indicate how much of this total is due to normal attrition rather than layoffs.

Furthermore, declining employment has been the norm in the steel industry for the past two decades. A continuation of this trend is hardly evidence of a crisis.

Meanwhile, the 1998 import surge shows every sign of being a passing phenomenon. According to Commerce Department figures, imports of steel mill products peaked in the third quarter of 1998 and have been declining sharply since then.

Normal marketplace reaction to falling prices and rising inventories, compounded by the threat of retroactive antidumping duties, caused steel imports to plunge by 29 percent in December compared with the previous month, and fall another 7 percent in January.

Hot-rolled steel imports from Japan, Brazil and Russia—the products targeted by the antidumping petitions—have dried up, falling to only 4 percent of their November 1998 levels. The Commerce Department reports that total steel imports fell to 2.2 million tons in February, 45 percent below November 1998 levels and less than the monthly average of 2.7 million tons imported in the last “pre-crisis” quarter, April-June 1997.

Despite recent problems, prospects for the U.S. steel industry look positive. Domestic demand is expected to remain strong, especially in the automotive sector, and exports could pick up in 1999 as demand in East Asia begins to recover.

After bottoming out in the fourth quarter of 1998, steel prices are expected to rise in 1999. Indeed, numerous U.S. mills have announced price hikes in the past few weeks.

Admittedly, American steel makers have experienced a tough couple of quarters. However, these challenging times do not constitute a crisis or threaten the future of the industry. They certainly do not justify resorting to ill-conceived protectionist policies that would injure downstream U.S. industries and flout our international obligations.

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