Trade Briefing Paper No. 4

The Steel ‘Crisis’ and the Costs of Protectionism

By Brink Lindsey, Daniel Griswold and Aaron Lukas
April 16, 1999

Claims of the imminent demise of America’s domestic steel industry — at the hands of “unfair” and “illegal” imports — have generated a crisis atmosphere in Washington. Antidumping, countervailing duty, and Section 201 actions now under way already threaten draconian cutbacks of steel imports. But U.S. steel mills and their unions want additional protection, including highly restrictive quotas already approved by the U.S. House of Representatives in March.

It is vitally important that policymakers gain a measured understanding of the full facts of the steel import question. There is no steel crisis. U.S. steel mills shipped 102 million tons in 1998, the second highest annual total in the past two decades. Eleven of the 13 largest steel mills were profitable in 1998, earning collective profits of more than $1 billion. U.S. steel makers still supply more than two-thirds of domestic steel consumption.

The problems confronting the steel industry are already lessening. Steel imports in February 1999 fell to 2.2 million tons, below the monthly average of 2.7 million tons imported during the last “precrisis” quarter of April-June 1997.

Steel protectionism is incapable of saving steel jobs. Employment in the steel sector has declined by more than 60 percent since 1980 largely because of rising productivity, and employment will continue to fall even if trade barriers are imposed.

Consumers and steel-using producers will pay a heavy price for steel protection. Workers in the major steel-using sectors — transportation equipment, industrial machinery, fabricated metal products, and construction — outnumber workers in the steel industry by 40 to 1.

Quotas are a direct violation of our international obligations under the World Trade Organization and would encourage copycat protectionism in other countries. An outbreak of protectionism around the world would directly threaten continued U.S. prosperity.

Congress and the administration should reject protection for the U.S. steel industry.

Read the Full Trade Briefing Paper

Brink Lindsey is director and Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute. Aaron Lukas is a policy analyst with the center.