Opinion Editorial

Monday, March 8, 1999  

Steel Industry Faces Competition From Abroad

Last week, columnist Pat Buchanan kicked off his third race for the Republican presidential nomination at the Weirton steel mill in West Virginia. Denouncing the "dumping" of foreign steel in the United States, he blasted Bill Clinton for pursuing a free trade policy. Buchanan demanded that he immediately impose across-the-board quotas on all steel and steel products entering the country.

Needless to say, Buchanan received loud applause from the beleaguered steel workers in the audience. They have been complaining for some time about rising imports and declining production in the steel industry.

  • According to the American Iron and Steel Institute, domestic steel production fell 3.5 percent in 1998 over 1997, and was down 14.9 percent in December over the previous December.

  • Capacity utilization in the steel industry fell to just 74.8 percent in December, a sharp drop from the 93.1 percent rate in March.

In short, the industry is hurting.

Imports unquestionably are an easy target for the steel industry's woes.

  • Last year, total steel imports rose by 33 percent to 41.4 million tons, compared with domestic production of 102.1 million tons.

  • Many countries registered triple-digit increases in steel exports to the U.S. in 1998, including Korea (+109 percent), Australia (+117 percent) and Japan (+163 percent).

It is not surprising, therefore, that steel workers see restrictions on imports as the savior of their jobs.

While import quotas might offer some temporary relief to the steel industry, imports are not the primary cause of its problems. Moreover, whatever benefits the steel workers gain will come at the expense of their brothers in steel-using industries such as autos.

The root of steel's problem actually is the deflationary policies being pursued by the Federal Reserve and the International Monetary Fund. The Fed is intent on wringing inflation out of our economy by keeping money growth tight and real interest rates high. This puts downward pressure on prices, especially those for commodities that are internationally traded. At the same time, the IMF has imposed deflationary conditions on countries with financial problems. Such countries often have little choice but to sell whatever they can no matter how low the price.

Ironically, steel workers are also suffering from their own high productivity. Between 1987 and 1996 output per hour in the steel industry rose by 54 percent. For all businesses the increase was only 9 percent. This is a major reason why prices for steel have lagged behind prices for other industrial commodities (see figure).

Pushing trade protectionism may be good politics for Buchanan -- polls show that most Americans favor restrictions on imports -- but as policy it is a mistake.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 8, 1999.

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