NCPA - National Center for Policy Analysis

Steel Fiasco

September 13, 2002

Globally, the steel industry is in terrible shape. Economists largely blame the shortsightedness of industry executives and interventions by government policymakers.

  • The steel industry is plagued by overcapacity worldwide, yet steel prices are up sharply.
  • Even as production rises year-by-year in such regions as Russia, the European Union, Japan and Brazil, foreign governments continue to subsidize their steel industries.
  • Most governments agree that inefficient mills should be shut down, but that usually means the mills of other counties -- not the ones at home.
  • The Bush administration's steel tariffs, imposed earlier this year, have made it difficult to impossible for steel-using industries in the U.S. to obtain the steel they need to remain in business -- which, even when it's available, can cost up to 50 percent above pre-tariff, market levels.

Experts say this confusion represents a classic example of the dangers of government intervention.

No one is happy. U.S. trade partners are threatening retaliation against a long list of U.S. exports and are angrier than Bush's foreign policy advisers expected. Domestic steel users, steel state politicians and unions are just as angry at the administration -- which is showing signs of backing down.

Bush's tariffs -- which range from 8 percent to 30 percent on a wide range of products -- were supposed to give U.S. steel makers time to become more efficient and competitive. That's the same argument presidents since Lyndon Johnson have used when they limited steel imports. Over the past three decades, tariffs have cost steel users $120 billion.

But just as in the past, those efforts have failed again. Most of the old-line American steel companies are still losing money -- and that limits their ability to modernize.

Source: Neil King Jr. and Robert Guy Matthews, "So Far, Steel Tariffs Do Little of What President Bush Envisioned," Wall Street Journal, September 13, 2002.

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