President Bush certainly is not afraid to rush into situations where angels might fear to tread. But it is unclear if this willingness to embrace seemingly contradictory policies is due to quiet confidence in his administration’s abilities or to simple foolishness.
The issue at hand is the president’s decision to recommend that the U.S. International Trade Commission conduct another “investigation” of steel imports to determine if the U.S. industry is being harmed.
Only weeks ago at the Quebec Summit of the Americas, the president pledged that he would press for construction of a Free Trade Area of the Americas. In particular, he met with Brazilian President Fernando Henrique Cardoso, who stressed that an FTAA will never come to pass unless the United States gives up its chronic protectionistic abuse of international trade law to coddle the U.S. steel industry.
Something has to give, folks! Any Latin American country with even one steel mill will take this week’s action as a slap in the face. Over two decades and four administrations, we have urged our neighbors to the south to privatize their industrial base. They have done so, often with the help of U.S. investment banks and in consortia with U.S. firms.
One can argue that there are still some hidden subsidies to steel industries in the region, but they are not great. We stressed the greater efficiency of the private sector, they took us at our word, and now we tell them that we are going to add another layer of protection to U.S. steel.
The U.S. steel industry has cried “dumping” and whined for protection for more than 30 years. Steel makes up about 4 percent of total U.S. imports, but about 50 percent of cases brought to the International Trade Commission come from steel.
And it has gotten relief. Repeatedly over the last 30 years the industry received “special” and “temporary” protection in the form of de facto quotas, higher tariffs and anti-dumping duties. In the 1970s and 80s, the industry argued that it only needed protection for a limited time while it “modernized.” But after 25 years, that argument got a little old.
Some modernization occurred, but it was in the form of new technology, electric minimills, that the industry scorned, and it was managed by new firms such as Nucor and North Star Steel, rather than such behemoths as U.S. Steel or Bethlehem.
Some newer plants depend on imports of semi-finished steel. Such imports were included in the litany of complaints acknowledged by the administration this week. Firms with mining interests want limitations on ore imports, as well. Those with mills structured to rely on imported ore don’t favor such measures. And firms whose mills use imported, semi-finished steel may favor further restrictions on finished products, but not on the billets or ingots used to charge their electric furnaces.
Why do members of Congress from both parties support import restrictions that, if applied to crude oil, would provoke screams of consumer outrage? And why does the U.S. media parrot industry claims of “unfair subsidies” and “dumping” without looking seriously at their validity?
Most U.S. households buy gasoline directly every week, but few buy steel itself. Instead they buy cars and refrigerators that contain steel, or gasoline made in petroleum refineries built with thousands of tons of steel. But make no mistake; consumers ultimately pay the bill for protection.
There is high irony in the administration’s implicit call for higher steel prices just weeks after announcing an energy plan based on more refineries, more power plants, more pipelines and more electric transmission lines. All are among the most steel-intensive products in any economy.
Luckily, a coalition of steel-using firms is objecting to increased and continued protection. Firms such as Caterpillar, John Deere, General Motors and General Electric are painfully aware that higher steel costs make it harder for them to compete.
Economic studies are pretty unanimous in demonstrating that whatever U.S. jobs are “protected” by import restrictions are more than offset by job losses in steel-using sectors. Such restrictions will hurt workers and owners of firms that would benefit from greater hemispheric trade.
Does the administration know what they are biting off here? Do they really think they can finesse the contradictions in these policy stances, or are they just clueless?
© 2001 Edward Lotterman
Chanarambie Consulting, Inc.