I wonder how Sen. Amy Klobuchar would have analyzed the hog market on Sept. 28, 1970, if she hadn’t been in grade school at the time. I remember the date exactly because it was my first morning back from Vietnam.
It was hugely disorienting to return from the sweltering heat of Landing Zone English to the cool and calm of a Minnesota fall. But it was reassuring to return to farm life and it was a busy morning because the neighbors were bringing over a truck of feeder pigs.
The pigs were beautiful 40-pound Yorks; not a scruffy one in the bunch. But as our neighbor ruefully noted after they were unloaded, there was no profit in them: “Yeah, $8 a head doesn’t even pay for the feed we have in them.” That was true, and they were getting nothing for their 2 a.m. checks on a birthing sow, nor for the dirty work of vaccination and castration, nor for anything else.
Klobuchar, along with Gov. Mark Dayton and many other political leaders, is protesting the “dumping” of foreign steel in our country for less than its cost of production. Would she have faulted our neighbors for “dumping” their pigs on us at less than the cost of production? Were they engaged in “predatory pricing” to drive other producers out of business? Should they have insisted that we pay the full cost of production, including all fixed costs, or else refuse to sell?
If they had, my mother would have sought to buy pigs elsewhere. Six months earlier, when the neighbors had taken the first steps in producing the pigs, they had hoped to make a profit. But the market had moved against them, and $8 was the going price. Nobody would have paid more than we did. And the market for hogs was so bad that when we sold these for slaughter in January, we didn’t make much either.
So what is the difference between our neighbors selling pigs at less than the cost of production and some Indian or Korean or Lithuanian steel mill selling U.S. steel users their product at less than the cost of production?
The two cases are not exactly the same.
Raising hogs in 1970 was a textbook case of “perfect competition,” with thousands of producers, thousands of buyers, good information about price and other relevant factors and a fairly uniform product. Steel production, with dozens of companies and hundreds of mills worldwide, falls into a category of “monopolistic competition” or “oligopoly:” situations where there is more than one producer, but not meeting the standard of perfect competition.
Hogs are a perishable product, while steel can be stored. Hogs can be graded, if only with the buyer’s eye, but they are not the uniform “homogeneous commodity” that steel is.
And the current kerfluffle is over international trade, while most buying and selling of live hogs has always taken place domestically.
But such differences are not all that important to the issues at hand.
The global steel industry remains very competitive, much more so than the market for electronic devices or drugs or chemicals or any other manufactured item.
There is no international cartel temporarily lowering prices so as to drive U.S. producers out of business. Homogeneity and perishability are not relevant issues.
Moreover, one common element remains as it always does.
If government actions, such as higher tariffs on imported steel, stop producers from selling as low as they would be willing to, steel buyers will pay more.
Having bought $579 worth of rebar back in May and $222 worth of angle iron last fall, I’m just a tiny target of the senator, governor and others who are trying to raise prices. Few households buy even that much steel directly.
But everyone buys it indirectly, and higher-priced raw steel will be passed along to consumers in the form of more expensive steel-containing products.
The muddled thinking about “anti-dumping” measures as currently sought by the U.S. steel lobby becomes apparent when we compare steel to petroleum.
We have a large domestic oil industry and we also import a great deal, just as we do with steel.
The domestic oil sector employs hundreds of thousands of workers.
When global prices are lower, exploration and drilling in particular fall and employment drops or is stagnant. Some producers sell at a price that does not cover all their costs, both variable and fixed. Some of this oil comes to our country.
So it is “dumped” here. If we imposed an “anti-dumping” import tariff on this oil, we would improve the profitability of the domestic oil industry, drilling would increase and employment would rise.
So if import taxes to end dumping would benefit our domestic oil industry, just as advocates argue they will benefit our domestic steel industry, why is there never political agitation for tariffs on oil?
The answer is that it would raise gasoline prices and there would be great public outcry.
There isn’t such an outcry with steel tariffs because people don’t buy steel directly on a daily or weekly basis as we buy gasoline.
But the economic effects are the same. Only the politics are different. Over the years, the domestic steel lobby has developed a finely honed whining machine, and it is running full-out right now.