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Supporting American Steel: The Right Choice

Last month the International Trade Commission sent to President Bush recommendations that the administration impose a set of temporary tariffs on steel imports to give the U.S. industry breathing room to restructure.

For decades the United States has maintained the world's most open steel market and forced our steel companies to play by market rules. Meanwhile, the rest of the world's governments extended lavish subsidies and other forms of support to their steelmakers. The United States became, in effect, the market of last resort for all the world's surplus steel capacity. This became

untenable after 1997, when Asia's economic crisis dried up foreign markets and prompted steelmakers to swamp this country with their products.

The result has been the biggest crisis in the history of the U.S. steel industry. Fully half the nation's major steelmakers have declared bankruptcy, and some such as LTV, the nation's third-largest integrated steelmaker have begun to liquidate their operations. Our steelmakers simply can't compete with subsidized foreign competitors operating in protected sanctuary markets.

It was in response to this crisis that President Bush took the appropriate and long overdue step of asking the International Trade Commission to investigate whether the import surge since 1998 has caused serious injury to the U.S. steel industry, and whether temporary support measures -- as

authorized under U.S. law and provided for under our World Trade Organization obligations --would be warranted. The ITC's response was unequivocal: All six commissioners found that the steel industry met the threshold for temporary protection and recommended a range of tariffs and quotas of up to 40 percent on certain products.

But as surely as night follows day, the strong likelihood that the President will soon impose these tariffs has prompted a furious scramble to preserve the unfair status quo.

Some of the most vocal critics have been foreign steelmakers and their governments, especially in the European Union. European governments have built a web of formal and informal import restraints to ensure the world's excess steel capacity is shipped to the United States rather than Europe; European steelmakers have good reason to fear exposure to the same cutthroat international competition that has devastated the U.S. industry.

Foreign steelmakers aren't interested in free trade or fair trade but in one-way trade. Perhaps someday, other steel-producing nations will finally agree to eliminate subsidies, cut excess capacity and attack the formal and informal barriers that block access to their own steel markets. But the modest results from recent discussions on reducing global steel overcapacity indicate how difficult that will be.

Equally vocal have been the steel users. Usually this term means a vague coalition whose principal players are in fact companies that serve as import agents for foreign steel. The big American manufacturing companies listed as members of these groups--makers of automobiles or machinery--tend to be a little more circumspect in their public remarks, as well they might. They know that complaints against the cost to consumers of temporary steel tariffs sound a little hypocritical coming from companies that have for years pursued a trade agenda that was often at odds with the welfare of the U.S. consumer: dollar devaluations, voluntary restraint agreements for foreign imports, anti-dumping suits or retaliatory sanctions against perceived foreign market barriers.

The third party to this unholy alliance the free-trade ideologues here in Washington and other ivory towers seems to think the chaos in the steel market is a reflection of foreign steelmakers' competitive advantage. That is not supported by the facts. Some of the biggest import surges since 1998 come from countries, such as Russia, Brazil, South Korea and Ukraine, that have faced serious economic crises bordering on meltdown. Clearly, their dramatic rise in steel exports to the United States correlates more closely with their own domestic economic mismanagement than to any sort of economic competitiveness.

Moreover, these outdated denunciations of the U.S. steel industry completely ignore the huge strides its has made in improving productivity, introducing new technology, and shedding excess facilities.

But there is a broader problem with the free traders' arguments, and that is their refusal to acknowledge that sometimes transitional supports to industry can work. Giving support to industry, in the form of financial support or tariff protection, is not something the United States does often or lightly. But when a program is focused, finite and of sufficient magnitude to assure customers and financial markets, an industry or company can be turned around -- ask Harley Davidson, Chrysler or Lockheed.

The U.S. economy, and the companies operating in it, enjoy many advantages: a vibrant domestic market, excellent economic infrastructure, a skilled labor force and managerial resources second to none. It is silly to pretend that those assets have blessed virtually every sector of the U.S. economy but mysteriously passed over the steel industry.

The President must grant transitional protection for the steel industry. Only this, combined with an effective solution to its longstanding cost issues and a firm international commitment to reduce overcapacity and eliminate subsidies, can provide the American steel industry with the breathing space it needs to complete its transition to most competitive in the world.