The Steel ‘Crisis’ and the Costs of Protectionism

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Claims of the imminent demise of America's domestic steelindustry -- at the hands of "unfair" and "illegal" imports -- havegenerated a crisis atmosphere in Washington. Antidumping,countervailing duty, and Section 201 actions now under way alreadythreaten draconian cutbacks of steel imports. But U.S. steel millsand their unions want additional protection, including highlyrestrictive quotas already approved by the U.S. House ofRepresentatives in March.

It is vitally important that policymakers gain a measuredunderstanding of the full facts of the steel import question. Thereis no steel crisis. U.S. steel mills shipped 102 million tons in1998, the second highest annual total in the past two decades.Eleven of the 13 largest steel mills were profitable in 1998,earning collective profits of more than $1 billion. U.S. steelmakers still supply more than two-thirds of domestic steelconsumption.

The problems confronting the steel industry are alreadylessening. Steel imports in February 1999 fell to 2.2 million tons,below the monthly average of 2.7 million tons imported during thelast "precrisis" quarter of April-June 1997.

Steel protectionism is incapable of saving steel jobs.Employment in the steel sector has declined by more than 60 percentsince 1980 largely because of rising productivity, and employmentwill continue to fall even if trade barriers are imposed.

Consumers and steel-using producers will pay a heavy price forsteel protection. Workers in the major steel-using sectors --transportation equipment, industrial machinery, fabricated metalproducts, and construction -- outnumber workers in the steelindustry by 40 to 1.

Quotas are a direct violation of our international obligationsunder the World Trade Organization and would encourage copycatprotectionism in other countries. An outbreak of protectionismaround the world would directly threaten continued U.S.prosperity.

Congress and the administration should reject protection for theU.S. steel industry.

Brink Lindsey, Daniel Griswold, and Aaron Lukas

Brink Lindsey is director and Daniel T. Griswold is associate director of the Center for Trade Policy Studies at the Cato Institute. Aaron Lukas is a policy analyst with the center.