Steel Quotas Will Strangle Economic Opportunity

This article appeared in the Journal of Commerce on May 11, 1999.
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The U.S. Senate will soon consider whether to impose further restrictions on the ability of Americans to import steel -- restrictions that will come at the expense of thousands of companies, millions of workers, and tens of millions of consumers.

Since last summer, the major steel mills and the big steel unions have beenbeating their steel drums for intervention against what was, at leasttemporarily, a rising tide of imported steel. In response to a series ofantidumping petitions, the Commerce Department has already slapped heavyduties or quotas on imported hot-rolled steel from Japan, Brazil andRussia -- reducing imports from those countries by 97 % since November.

Not content, the steel lobby now wants comprehensive quota restrictions toplace a three-year lid on steel imports. The House passed a steel quota billin March by a 289-141 vote, and the Senate is expected to consider themeasure and at least one compromise proposal any day now.

Imposing quotas on imported steel would punish the huge swath of Americanindustry that uses steel, from automobiles and machine tool makers toconstruction, while driving up final prices for a range of consumer goods.Quotas would flout our commitments under international trade law and inviteretaliation against American exports.

The steel industry claims it is facing a life-or-death crisis caused byrising imports, but that argument, never convincing, has melted away inrecent months. The steel industry shipped 102 million tons in 1998, itssecond best year in two decades. Although imports did rise last year by 33percent, U.S. producers still supplied two-thirds of domestic demand. And assteel industries around the world slumped, America's share of globalsteel production actually rose in 1998 compared to 1997.

Meanwhile, steel imports have receded from the high tide of last fall.Between November 1998 and March 1999, steel imports fell by 30 percent.According to the latest numbers, steel imports in the first quarter of 1999were below their level in the second quarter of 1997, before the East Asianeconomic turmoil hit.

The steel lobby argues that import quotas are needed to stem the loss ofsteelworker jobs.

According to the Bureau of Labor Statistics, about 10,000 fewer workers areemployed in the steel industry today than at the beginning of 1998.

But such job losses in the steel industry have been routine for two decades.Since 1980 the number of employed steelworkers has dropped by 60 percent,from 400,000 to 160,000. The reason for this drop has not been fallingproduction due to import competition but rising productivity. The industryrequired about 10 man-hours to produce a ton of steel in 1980; today itrequires an average of less than four.

This relentless drive for greater productivity has been fired by the spreadof mini-mills, which turn scrap metal into a wide range of semi-finished andfinished steel products. From a 15 percent market share in 1980, mini-millstoday account for almost half of America's steel-making capacity. IfBethlehem, Weirton and other integrated steel companies want to blamesomebody for their relative decline, they should point the finger atdomestic competition, not foreign producers.

The federal government tried the quota route in the 1980s, imposingquantitative restrictions on steel imports from 1984 to 1992. Importpenetration did fall, but so did steel industry employment. In fact, duringthose eight years the number of employed steelworkers fell by 78,300, anaverage annual decline of just under 10,000 workers -- sound familiar?

Steel employment will continue to decline as productivity increases,regardless of imports. Protectionism may slow the process somewhat butcannot stop it, and will jeopardize jobs in the much larger sectors of theU.S. economy that use steel.

In manufacturing alone, workers in the major steel-usingindustries -- transportation equipment, fabricated metal products, andindustrial machinery and equipment -- outnumber steelworkers 20 to 1.

Adding workers from the construction industry, another major consumer ofsteel, brings the total number of steel-using workers to 8 million,outnumbering steelworkers by more than 40 to 1.

Higher steel prices will drive up costs for consumers at home and abroad. Ifthe steel lobby succeeds, Americans will pay more for cars, houses andwashing machines.

Those higher costs will find their way into American exports, making themless competitive in global markets, while making foreign-produced goods thatcontain steel more competitive in our domestic market.

In a recent speech in Dallas, Federal Reserve Board chairman Alan Greenspanwarned that protectionism will "slow the inevitable transition of theworkforce to more productive endeavors. To be sure, an added few years mayenable some workers to reach retirement with dignity, but it will also keepfrozen in place younger workers whose better job opportunities decline withtime."

In an economy of limited resources, jobs can be artificially prolonged at asteel mill only by strangling jobs before they can be created in moredynamic sectors of the economy. Raising barriers to steel imports today willmean less opportunity tomorrow for our children and their children.