A Wall of Steel

This article appeared in the St. Louis Post-Dispatch on July 8, 2001.
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Protecting a few big steel mills from foreign competition mayhelp the Bush administration politically in the short run, but itwill impose a heavy, long-term cost on the U.S. economy and theadministration's goal of pursuing free trade abroad.

On June 5, Bush announced that the United States would initiatea Section 201 investigation against foreign steel producers, anaction that will likely result in comprehensive quotas againststeel imports.

Imposing quotas on imported steel is not an example of aninternationalist policy but of an isolationist policy. It stringsbarbed wire around the U.S. market, sealing it off from globalsupplies and price competition. Quotas will by design drive updomestic prices, turning the United States into an isolated islandof high steel prices and artificial shortages.

Section 201 quotas will not serve any true national interest,despite the president's words. They will only serve the narrowself-interest of an economically small but politically influentialsteel industry.

The higher domestic prices caused by the quotas will impose astealth tax on millions of American families who buysteel-containing products such as cars, light trucks, appliancesand new homes. Studies estimate steel quotas will cost Americanconsumers at least $732,000 per steel job "saved." Steel quotaswill damage a large swath of American industry far moreeconomically important than steel.

Higher prices will raise production costs and lowerinternational competitiveness for steel-using producers oftransportation equipment, industrial machinery, fabricated metalsand buildings.

Employment in these industries totals 8 million, which means forevery one steel-industry job supposedly protected by quotas, 40jobs will be made less secure.

Like higher energy prices, quotas will raise the price of a keyindustrial input, pushing the economy closer to recession. Theadministration has just given the European Union, Japan and Brazilanother reason to say no to more open markets.

To justify quotas, the president evoked the usual bogeyman of"unfair VO trade." But the term is economically meaningless.Foreign producers who sell in our market at a loss or at a pricelower than in their home market (the definition of dumping) areengaging in business practices that are routine and perfectly legalfor U.S. producers in our domestic market.

Every U.S. company that is losing money or selling products atdifferent prices in different markets would be guilty of dumping ifthe U.S. law were applied to them, but it is unfairly applied onlyto foreign producers.

Even if foreign producers were technically dumping steel,Section 201 has nothing to do with "unfair trade." The law isdesigned merely to blunt import surges that hurt U.S. industry,whatever the underlying cause may be.

It is true that steel industries around the world have beensubsidized by governments over the decades, but those subsidieshave fallen dramatically in recent years.

Meanwhile, the U.S. industry has enjoyed its share of governmentfavors, from 30 years of quotas and other protection to recent"loan guarantees" and more direct state and local subsidies.

Our hands are not clean. Erecting barriers to imports will onlypostpone needed consolidation of the U.S. steel industry.

The industry has not been losing jobs because of unfair imports,but because of relentless technological changes brought by"mini-mills" that produce a ton of steel at a fraction of the manhours required by the larger integrated mills.

During the last period when comprehensive quotas were in place,1984 to 1992, the steel industry continued to lose nearly 10,000jobs per year. Quotas will only slow the inevitable.

The Bush administration will probably win short-lived applausefrom the steel unions and CEOs and steel-state members of Congress,but its tactic of appeasement will come at a heavy price. When thecheering fades, the administration will be left with an economyslowed by higher prices and a world even more skeptical of itsfree-trade rhetoric.