Protectionism Hurts Consumers

This article appeared on Cato.org on February 4, 1999.
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Rep. Bob Ney's Jan. 20 op-ed column, "Steelworkers Betrayed,"which called for protection against imported steel, betrays theinterests of most Americans who benefit from lower steelprices.

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

If every domestic sale were required to be at a "fair" priceaccording to the antidumping law's definition, most U.S. companieswould be vulnerable to government sanction, and U.S. consumerswould find far fewer bargains.

Because of the antidumping laws, a huge dose of protectionalready is working its way into the steel market. Imports fromRussia almost have stopped because of the threat of retroactiveduties approaching 200 percent, and the Commerce Department is allbut certain to announce hefty duties against imports from Russia,Japan and Brazil. Meanwhile, the administration has beenbrowbeating Japan to "voluntarily" reduce its exports to the UnitedStates, even though its steel production has fallen to its lowestlevel in 30 years.

The victims of this war are consumers. If antidumping duties andquotas are enacted, Americans will pay more for a range ofproducts, including household appliances, new construction,machinery, trucks and automobiles. The typical five-passengersedan, for example, contains $700 worth of steel. If governmentintervention raises the price of steel by $50 a ton, American steelusers will pay an extra $6.5 billion for the 130 million tons theyconsume annually.

Quotas and duties on imported steel will not "protect" U.S.industry. They will profit only a small sector employing fewer than200,000 production workers. Higher steel prices will endanger jobsin industries that employ 40 times as many workers as does thedomestic 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 twodecades despite bouts of protectionism. The reason is simple:rising productivity. The integrated steel mills have reduced thenumber of man-hours needed to produce a ton of steel from anindustry average of 10.1 in 1982 to 3.9 today.

Foreign competition has spurred this progress, but the mostruthless competition has come from within our borders, fromso-called mini-mills. The more efficient of these smaller mills canproduce a ton of steel in fewer than two man-hours and relentlesslyare expanding the scope of products they can make. With or withoutprotection, the industry will continue to consolidate and shedworkers, with production shifting from the larger integrated millsto the smaller, more efficient (and less unionized) specialtymills.

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

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