03-09-2002
ECONOMICS: Steel Thyself, America
Now the hard part begins. The President has granted domestic steel
producers and their mill hands a degree of protection-albeit not as much
as industry executives and Big Labor pressed for-from cheaper imported
steel. Next the Bush Administration must somehow persuade foreign
steelmakers to reduce their excessive production capacity. It is the
ability of the Europeans, the Japanese, the Russians, and others to
produce much more steel than they consume and then to unload it in the
U.S. market that has long been one cause of the financial troubles in the
shrinking American steel industry.
If hoped-for international talks aimed at curbing the glut of global
steelmaking capacity fail, as similar efforts have in the past, Bush's
limited relief for the U.S. steel industry will have merely kicked the
problem down the road. That may be an artful political solution for White
House political operatives focused on the coming elections, but it could
result in a slow death for much of the domestic industry.
The Bush Administration will impose tariffs of 8 percent to 30 percent on
various types of steel for three years to give the U.S. steel industry an
opportunity to downsize and become more competitive. These tariffs are in
some cases higher and in some cases lower than those recommended by the
U.S. International Trade Commission.
The Administration's plan has, predictably, not pleased everyone.
Free-market enthusiasts argue that the President's new import barriers
will raise the prices American consumers pay for everything from cars to
refrigerators and will cost more domestic jobs than the barriers will
protect. Steel executives complain that the White House's action won't
generate enough extra income for U.S. steel producers, including some of
the new high-tech mini-mills that were supposed to represent the
industry's future.
But the real long-run test of the President's plan is whether it will give
his trade negotiators sufficient leverage to extract significant new
pledges by foreign steelmakers to reduce capacity. "There is so much
excess capacity in the world," said Peter G. Morici, an economics
professor at the University of Maryland's business school. "If we
can't negotiate some of it away, these remedies won't do a lot of
good."
In 2000, the last year for which comparable data are available, the United
States produced 102 million metric tons of steel and consumed 115 million
metric tons. Most other major producers around the world have excess
capacity, defined as the difference between their production capacity and
their nation's actual consumption of crude steel. Over the past few years,
such excess capacity has averaged 114 million tons in the nations of the
former Soviet Union, 74 million tons in Japan, and 44 million tons in the
European Union.
The glut is certainly not new. The Administration of Bush I attempted to
negotiate cuts in international capacity. And largely failed. Bush II is
trying again. In a meeting late last year in Paris, the major industrial
nations pledged to reduce capacity by 97.5 million metric tons over the
next decade.
"This non-binding goal would only reduce over-capacity by a third and
is not substantially greater than capacity reductions that might occur
anyway from market forces," wrote Gary Hufbauer and Ben Goodrich in a
recent paper published by the Institute for International Economics, a
Washington think tank.
This woefully inadequate goal will do little or nothing to solve American
steel's problems. To extract greater capacity cuts, the Bush
Administration now needs to redouble the pressure on foreign producers,
which, American steelmakers claim, have long benefited from direct and
indirect government subsidies.
Imposing higher tariffs this week would have helped. Experience in the
1980s suggests that the Europeans took their excess production capacity
seriously only after the Reagan Administration imposed steel import
restraints. When Europeans couldn't sell their excess steel to America,
their mills became too expensive to operate and they cut 26.8 million tons
of capacity in short order.
Without such leverage, the United States needs to find other ways to
promote change. Hufbauer and Goodrich suggest a grand bargain-the United
States would waive existing and future steel anti-dumping and
countervailing-duty cases, among other things, in return for foreign
producers' taking significant steps to cut capacity and to open their
markets to competition. Industry representatives are skeptical.
"There is nothing in the dismal history of trade in steel to suggest
that such a policy will deter further acts of economic aggression-and
indeed, much evidence exists to the contrary," said Thomas R. Howell,
a partner in the law firm of Dewey Ballantine, which represents the U.S.
steel industry. The industry is likely to file a slew of anti-dumping
cases that should give the Administration new leverage.
Whatever is accomplished at the bargaining table in the months ahead, the
Bush Administration has only bought time-it has not solved the problem.
The elemental unfairness of the status quo remains unchanged. American
workers and the communities in which they live are being forced to adapt
to the rigors of global competition, while steelmakers in Europe, Japan,
and elsewhere continue to be shielded from such adjustment. No wonder
"globalization" is a dirty word in much of the industrial
heartland.
Bruce Stokes
National Journal
