The steel industry brought the country to the brink ofprotectionism with its vigorous campaign for tough new restrictionson steel imports. But the Senate, showing an unusual combination ofeconomic sense and political courage, refused to jump off thepolicy cliff.
There are few issues that more unite economists than support forfree trade. Purchasing the best goods at the lowest prices,irrespective of where they are produced, is a key ingredient toeconomic success.
Of course, that doesn't mean no one loses. Participants indeclining industries are hurt by all sorts of economic changes.Earlier this century workers who made buggies lost their jobs toautomobiles. Decades later workers who made automobiles lost theirjobs to foreign imports.
Attempting to freeze the economy to protect employment in suchcases would lock resources in obsolescent and inefficientindustries, stifling technological progress and economicdevelopment. Some jobs would be preserved, but many more wouldultimately be lost.
Unfortunately, however, the jobs saved are visible while thosedestroyed are invisible. And the political process is driven by thevisible. Steel workers know their jobs are threatened; theytherefore organize and lobby for protection. Those who would sufferfrom trade restrictions -- such as auto workers who would suffer asrising steel prices raised the cost of and thus lowered the demandfor cars -- are typically oblivious to the threat.
Which is precisely what has happened with steel. The Asianeconomic crisis triggered greater imports from that region.American consumers have been unambiguous beneficiaries. So, too,have U.S. industries which use steel.
But domestic steelmakers have lost some sales and a number ofworkers have lost their jobs. That spurred a campaign to roll backsteel imports. In March the House overwhelmingly approved quotas onsteel. To its credit, the Clinton administration opposed thebill.
The arguments against the legislation were unassailable. In1998, American firms shipped 102 million tons of steel, thesecond-highest amount over the last two decades. Production wasone-fifth higher than in 1989, the previous cyclical peak.
Domestic producers accounted for two-thirds of U.S. consumption.Indeed, America's share of international production actually rosefrom 12.3 percent to 12.6 percent.
U.S. steel companies, busy squealing for protection, earned acollective profit of $1.5 billion last year. Eleven of the largest13 steel mills were profitable.
Moreover, these companies are among the biggest purchasers offoreign steel (typically basic slab vs. finished products). As muchas one-fourth of total imports goes to U.S. steel companies.Low-cost steel is obviously fine so long as it enhances alreadyample industry profits.
In any case, new trade restrictions would only slow, not halt,the decline in jobs in the steel industry. Over the last threedecades, Washington has utilized a variety of trade restrictions,ranging from quotas to the so-called trigger price mechanism todumping penalties to "voluntary" restraints. Yet steel employmenthas dropped more than 60 percent since 1980 because companies havegrown more productive. This trend will continue.
Nevertheless, quotas would cost $800,000 per job saved,according to the Institute for International Economics. It would becheaper to hand every displaced worker a life-time annuity and tossin a vacation to Bermuda.
Moreover, the higher costs from such restrictions would ripplethrough the economy. Not only would prices rise, but jobs woulddisappear. Indeed, employees in industries that use lots of steel-- construction, fabricated metal products, industrial machinery,and transportation goods -- outnumber those in the steel industryby 40-to-1.
Finally, protectionism would encourage retaliation against U.S.exports. America is the world's greatest trading nation. Ittherefore has the most at stake in maintaining an openinternational economic system. Should the United States imposesteel quotas, thereby violating World Trade Organization rules,other nations would be entitled to restrict American exports inresponse. Washington would risk sales in products where it leadsthe world, such as agriculture, aircraft, high-tech, andpharmaceuticals. Far more workers could find themselves withoutjobs.
There is one aspect in which steel imports are unfair, however.U.S. taxpayers routinely subsidize foreign producers of steel andother goods.
The Export-Import Bank lends money to the internationalcompetitors of American firms to buy U.S. products. The World Bankunderwrites foreign government enterprises, including steeloperations. The International Monetary Fund pushes borrowers todevalue their currency, which lowers the prices of their exports,including of steel. All these organizations should be defunded anddismantled.
Economic change can be painful; one should sympathize with thevery real plight of those harmed by foreign imports. But steelworkers, executives and shareholders have no right to loot the restof the population. Preserving open markets is the only way toprotect the public interest.