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Protectionist Welfare for Steel
by
James Bovard,
September 2002
On March 5, President Bush announced that he was slapping high tariffs on
steel imports. Bush began the announcement by declaring,
“Free trade is an important engine of economic growth and a cornerstone of
my economic agenda.... To open even more markets to American products, I
have urged the Senate to grant me the trade promotion authority I need to
create jobs and greater opportunities for U.S. workers and farmers.”
He then explained,
“An integral part of our commitment to free trade is our commitment to
enforcing trade laws to make sure that America’s industries and workers
compete on a level playing field. Free trade should not mean lax
enforcement.... Today I am announcing my decision to impose temporary
safeguards to help give America’s steel industry and its workers the chance
to adapt to the large influx of foreign steel.”
Bush’s sleight-of-hand was sufficient to fool most of the press. He first
invoked U.S. fair trade laws and the “level playing field” — and then
announced that he was providing special relief to steel producers that had
nothing to do with laws that provide U.S. companies with relief from
allegedly unfair imports. He proclaimed,
“I take this action to give our domestic steel industry an opportunity to
adjust to surges in foreign imports, recognizing the harm from 50 years of
foreign government intervention in the global steel market.”
He concluded,
“The U.S. steel industry must use the temporary help today’s action provides
to restructure and ensure its long-term competitiveness.”
Bush behaved as if neither he nor any of his advisors had any awareness of
the history of U.S. restrictions on steel imports. His action is simply
another chapter in the sorry history of federal favoritism to one laggard
industry.
The federal government has repeatedly succeeded in turning steel into a
chokepoint on the American economy. Although steel-using industries account
for 46 percent of U.S. exports, federal steel policy has perennially
sacrificed the users of the basic industry material to protect an industry
and its workers from their own complacency and greed.
Behind high protective tariffs, Andrew Carnegie engineered the steel trust,
which became legendary for selling steel overseas at a far lower price than
it charged in the U.S. market. U.S. Steel got a black eye when President
Theodore Roosevelt bought U.S.-made steel for the Panama Canal in Central
America for 40 percent less than it was selling in Pittsburgh.
In the first decade after World War II, the U.S. steel industry reigned
supreme, largely because the steel industries of other industrialized
nations had been razed by wartime bombing. The U.S. industry made little
effort to adopt new technology.
Many U.S. plants were built at the turn of the century. Rather than
modernize their plants, steel companies invested in home-building, chemical
production, and other areas. The industry was notorious for its
oligopolistic pricing methods, obediently following the pricing leads of
U.S. Steel.
Between 1946 and 1966, steel prices increased more than twice as fast as all
other prices. As foreign steel producers surpassed American companies in
competitiveness and quality, steel imports increased in the 1960s.
In 1968, the steel lobby launched a political drive to shackle its foreign
competition, ready to fight the surge of imports to their customers’ last
dollar. In June 1968, I.W. Abel, president of the United Steel Workers,
bluntly informed the members of the House Ways and Means Committee, “We are
becoming very annoyed by the so-called advocates of the free-trade market.”
Sen. Vance Hartke (D-Ind.) announced, “I believe that quotas are necessary
in the short term now, in order to force free and fair trade in the long
term.” Foreign steel was then between 15 and 20 percent cheaper than
American steel.
In January 1969, President Lyndon Johnson announced that foreign governments
had agreed to “voluntarily” restrict their steel exports to the United
States. The quotas were to be temporary, lasting only three years. The U.S.
steel industry responded to the quotas by sharply boosting U.S. steel
workers’ wages and making major concessions to the United Steel Workers on
work rules that reduced labor productivity. In January 1972, the
voluntary-restraint agreements (VRAs) were extended for three more years.
In 1976, President Ford took a break from his “Whip Inflation Now” crusade
to impose quotas on specialty steel products from Sweden, the EC, and Japan.
In 1977, the steel industry flooded Washington with petitions accusing
foreign companies of dumping — accusations based on a new definition of
dumping that the steel industry had railroaded through Congress in 1974.
President Carter’s Council on Wage and Price Stability concluded that the
steel industry was “a source of serious inflationary pressures on the
American economy” and that more quotas would not significantly improve the
industry’s economic position.
The Carter administration wanted to avoid a major confrontation with
European allies; instead of imposing new quotas, it established the Trigger
Price Mechanism (TPM) to set minimum prices for steel in the U.S. market.
The Brookings Institution’s Robert Crandall estimated that the TPM reduced
steel imports by 40 percent.
In 1982, the steel industry launched a new barrage of petitions alleging
that foreign steel producers were heavily subsidized. The Department of
Commerce investigated and found that Europe’s most efficient steel
producers — the Germans and the Dutch — received minimal subsidies, and
several other nations had extremely low subsidy rates.
Yet the EC was forced to reduce its steel exports to the United States by 15
percent. The resulting import quotas had no relation to the amount of
subsidy each European company received, effectively rewarding European
governments that subsidized their steel and penalizing European governments
with no subsidies. Upon announcing the agreement, President Reagan declared
that the quotas, “will mean more and lasting jobs in the steel industry.”
(Steel employment declined sharply in subsequent years.)
Nine months later, when the European Community refused to restrict exports
of stainless steel (not covered by the October 1982 quotas), Reagan
unilaterally imposed quotas and higher duties on European exports. When he
announced the quotas on specialty-steel imports in July 1983, he declared
that the program “is tailored to the needs of the industry as well as the
objective of trade liberalization.” He did not explain how the new quotas
would help liberalize trade.
In early 1984, when the U.S. steel industry launched another deluge of
unfair trade cases against imports, prices for cold-rolled sheet steel in
the United States were nearly 40 percent higher than prices in other
markets. Reagan announced on September 18, 1984, that he had decided that
“import relief is not in the national economic interest” and that “we must
do all we can to avoid protectionism, to keep our market open to free and
fair competition, and to provide certainty of access for our trading
partners.”
So much for the first half of his message, which was crafted to numb free
traders and industries reliant on steel. Then, almost as an afterthought, he
added, “However, I have decided to establish a government policy for the
steel industry” — a new set of controls on imports that sought to limit
foreign steel to 18.5 percent of the U.S. market.
The 1984 quota agreements make edifying reading. Many of the official
voluntary-restraint arrangements began “The purpose of the Arrangement is to
create a period of stability in steel trade between the United States of
America and” the foreign country.
The fine print revealed that “stability” could be achieved only by severe
reductions in imports.
The arrangement with Trinidad and Tobago decreed that total tons shipped
fall from 91,875 in 1985 to 55,125 in 1989.
Venezuelan and Mexican steel exports were forcibly reduced by 62 percent.
Japan was allowed the following shares of the American market: plate, 0.60
percent; bar, 1.50 percent; cold-finished bar, 4.54 percent; and wire rod,
6.71 percent.
Finland was allowed only 0.16 percent of the sheet and strip market, and
0.044 percent of the wire rod and bar market.
Steel trade restrictions bushwhacked American industry. International Trade
Commission chairman Paula Stern noted,
“Inflated U.S. steel prices were an important factor in the erosion of U.S.
manufacturing preeminence and employment from the 1960s to the mid 1980s.”
The Institute for International Economics estimated that steel quotas cost
U.S. consumers $6.8 billion a year. Steel shortages had had even more
devastating impacts on American manufacturers than higher steel prices.
Even General Motors was hurt by quotas: GM Vice President James D. Johnston
complained to the White House that steel shortages “have jeopardized vehicle
assembly at the company.”
Steel quotas destroyed far more jobs than they saved. Caterpillar led the
fight against the extension of steel quotas in 1989 with buttons
proclaiming, “Steel VRAs Steal Jobs.” Hans Mueller, professor of economics
at Middle Tennessee State University, estimated that the quotas resulted in
13 jobs lost in steel-using industries for each steel-worker’s job saved.
The Institute for International Economics estimated that quotas were costing
the equivalent of $750,000 a year for each steel job “saved.” A 1984 Federal
Trade Commission study estimated that steel quotas cost the U.S. economy $25
for each additional dollar of profit of American steel producers.
On July 25, 1989, President George H.W. Bush extended steel import quotas
for another two and a half years. He labeled the quota extension a “Steel
Trade Liberalization Program” — as if free-market rhetoric could magically
transform the nature of a protectionist act.
Bush’s 1989 announcement sounded much like Reagan’s 1984 announcement,
raising suspicions that White House speech-writers were recycling the same
doubletalk every few years. A goal of Bush’s program was “to end government
interference in global trade in steel” — though maintaining U.S. government
controls over steel imports was a peculiar way to achieve that goal.
President George W. Bush’s response to the pressure for steel import restric
tions was one of the most decisive tests of his presidency. Unfortunately,
he appears to be simply another one of a long line of protectionist
politicians who have “learned nothing and forgotten nothing.” The debacle of
the steel import restrictions will unfold over the coming years — with
evidence mounting of U.S. manufacturers sabotaged, of foreigners pointlessly
shafted, and of multiplying retaliation against U.S. exports around the
globe.
James Bovard is the author of Feeling Your Pain: The Explosion and Abuse of Government Power in the Clinton-Gore Years (St. Martin’s Press, August 2000). This article is adapted from an essay published by The Future of Freedom Foundation in Fairfax, Va.
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