Beleaguered steel workers 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.

• 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).

However, imports are not the primary cause of the steel industry's problems. The root of steel's problem actually is the deflationary policies of 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 for internationally traded commodities. 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).

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

For more on International Competition http://www.ncpa.org/pd/trade/trade8.html