Industry Sets Steel Trap for U.S. Economy

October 20, 1998 • Commentary

Don’t be fooled by all those ads admonishing us to “Stand Up for Steel.” The real agenda of the steel industry and its labor unions is to use the power of government to defend their market share at the expense of other American producers and consumers.

The steel industry claims that a recent surge in imports threatens to wipe out domestic production, destroying jobs and undermining our national industrial might. The industry has petitioned the Commerce Department for relief from imports allegedly “dumped” on the U.S. market at prices that are below “fair value” — a move that could impose high tariffs on steel imported from Japan, Brazil and Russia. On October 15, the U.S. House voted 345–44 to threaten a one‐​year ban on steel imports from those and seven other countries.

Lower prices caused by a rise in steel imports may be bad news for steel producers, but they are good news for the vast majority of Americans who make and consume products that contain steel. Like all forms of trade protection, imposing tariffs or quotas on imported steel would boost wages and profits in the favored industry by driving up costs for steel users, including other U.S. industries.

Consider automobiles. The typical five‐​passenger sedan contains about $700 worth of steel. Lower steel prices mean lower car prices for American families and higher sales, profits and employment for the domestic automobile industry. More affordable steel will have the same beneficial effect on other steel‐​consuming industries such as construction and food packaging. Propping up steel prices through protection will force other industries to contract and make it more difficult for such voracious steel users as General Motors and Caterpillar to compete in world export markets.

Rising steel imports may reduce membership in steelworkers’ unions, but they also free labor and capital for other sectors where America has a greater comparative advantage. The dollars we send abroad to buy more imported steel return to the United States to buy American wheat, chemicals, machine tools, computer software and insurance services, creating new jobs in export sectors to replace those lost to import competition. Repatriated dollars build new factories to make Americans more productive, or they finance Treasury bonds, leading to lower interest rates for homebuyers and other borrowers. Thus the jobs “saved” by protecting the steel industry will only come at the expense of destroying potential new jobs in other sectors of the economy.

What’s good for the domestic steel industry is not always good for America.

The U.S. steel industry is not about to close up shop. Thanks in large measure to the presence of foreign competition, American steel companies have been forced to become much more competitive in recent years, with the number of man‐​hours required to produce a ton of steel falling from 10.1 in 1982 to 3.9 today. (Some of the more advanced “mini‐​mills” can produce a ton in fewer than 2.0 man‐​hours.) American steel companies remain the dominant players in the domestic steel market, supplying three‐​quarters of the 118 million tons of steel Americans consume annually. Despite the rise in imports, most of the major U.S. steel companies continued to operate at a profit in the third quarter of 1998. Why should the U.S. economy be hit with a special‐​interest tax to subsidize an industry that still dominates the world’s largest market?

Besides being economically self‐​defeating, steel protection would be at odds with America’s foreign policy interests. The best thing America can do to encourage growth and stability in the world economy is, not to give money away through the International Monetary Fund, but to keep our markets open to the global economy. It makes no sense to hector Japan to stimulate its domestic economy or to underwrite IMF loans to Brazil and Russia while denying producers there the opportunity to earn valuable foreign exchange by selling steel to willing American buyers.

The steel industry’s petition demonstrates once again that America’s antidumping laws are nothing but a protectionist club for industries feeling the heat of global price competition. Those laws punish foreign producers for engaging in practices that are perfectly legal, and common, in the domestic American market. U.S. firms routinely sell the same product at different prices depending on local conditions, or temporarily sell at a loss in order to liquidate inventories and cover fixed costs. If every domestic sale was required to be at a “fair” price according to the antidumping laws’ definition, most American companies would be vulnerable to government sanction, and U.S. consumers would find far fewer bargains.

Stand up for steel? No, let’s stand up for competition, lower prices and a more prosperous America by rejecting tariffs or quotas on steel imports. What’s good for the domestic steel industry is not always good for America.

About the Author
Daniel Griswold
Former Director, Herbert A. Stiefel Center for Trade Policy Studies