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Spines of Jello, Not Steel


It’s that time again when America’s big tough steel companies and steel workers go whimpering to the federal government asking for protection from foreign steel bullies. “Prices are too low,” they cry to the government. “Protect us!”

Since World War II this has happened more times than you can count. Every year the big integrated steel companies file suits claiming that foreign steel makers are “dumping” their products in the American market.

“Dumping.” You know what that is? It’s like a sale at K-Mart.

Indeed, imports do account for a larger part of the U.S. market than previously. The import share of hot-rolled steel, a key product, has risen from 23 percent to a record 35 percent. The price is down 18 percent, hitting a record low. American firms are cutting production and laying off some employees.

Before anyone panics, I have just two words: That’s business. Economic conditions are always in flux. Jobs disappear, freeing up workers to take new jobs that, in a free economy at least, are always coming along.

The domestic companies say that the Japanese, Russians, and Brazilians are selling below cost. They want duties imposed to force the price back up. But foreign steel makers could have many good reasons for cutting prices. Asia’s economic problems have dampened the demand for steel in that region. The companies have inventory to sell off. The American market is thriving. Of course they will try to sell here.

But is it unfair to sell below cost? How could it be? Trade between consenting adults can’t be labeled “unfair.” The parties would not engage in the trade if they didn’t expect to come out ahead. Each values what he gets more than what he gives. That’s true of all free exchange.

There is an easy way to cut through the dumping propaganda. Forget “cost of production.” Those are yesterday’s costs. Economic activity is aimed at the future. In deciding how much to accept for a product, a seller isn’t guided by costs paid yesterday. He tries for the best price today in light of what he thinks will happen tomorrow. If a price below “costs” serves his interests better than a higher price, he will take it. (That’s why K-Mart has sales.)

We should not accept the American steel interests’ claims at face value. Past charges of selling below the cost of production were based on dubiously high cost figures. Rather than using actual costs, the Americans used a formula cooked up to demonstrate dumping regardless of the actual situation

The steel interests also argue that higher prices are good for all Americans. This is easily refuted. It may be good for the steel interests. But how in the world are higher prices good for American steel users , say, the auto makers? If they have to pay more for steel than their foreign rivals, they will be at a competitive disadvantage. They might have to cut production and lay off workers.

There is a profound lesson in this. Whenever government protects one set of Americans from competition (foreign or domestic) it hurts another set of Americans. This makes a mockery of the alleged solidarity of labor. When the United Steelworkers trudge to Washington demanding shelter from foreign steel, they might as well be saying, “Throw the auto workers out of their jobs so that our members can keep working.” The cause isn’t quite as noble as they make it sound.

All barriers to foreign trade suffer from these defects. They violate the natural right of individuals to trade peacefully with whomever they choose, and they lower the living standards of consumers and other workers by artificially raising prices and making the protected companies lazy.

Ordinarily, there is nothing wrong with looking out for one’s own interests. But when one does so by asking government to harm others, that is wrong-and in the long run it isn’t even good for the beneficiaries of the protectionist policies.

If we want peace and prosperity, free trade is the only way to go.

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    Sheldon Richman is former vice president and editor at The Future of Freedom Foundation and editor of FFF's monthly journal, Future of Freedom. For 15 years he was editor of The Freeman, published by the Foundation for Economic Education in Irvington, New York. He is the author of FFF's award-winning book Separating School & State: How to Liberate America's Families; Your Money or Your Life: Why We Must Abolish the Income Tax; and Tethered Citizens: Time to Repeal the Welfare State. Calling for the abolition, not the reform, of public schooling. Separating School & State has become a landmark book in both libertarian and educational circles. In his column in the Financial Times, Michael Prowse wrote: "I recommend a subversive tract, Separating School & State by Sheldon Richman of the Cato Institute, a Washington think tank... . I also think that Mr. Richman is right to fear that state education undermines personal responsibility..." Sheldon's articles on economic policy, education, civil liberties, American history, foreign policy, and the Middle East have appeared in the Washington Post, Wall Street Journal, American Scholar, Chicago Tribune, USA Today, Washington Times, The American Conservative, Insight, Cato Policy Report, Journal of Economic Development, The Freeman, The World & I, Reason, Washington Report on Middle East Affairs, Middle East Policy, Liberty magazine, and other publications. He is a contributor to the The Concise Encyclopedia of Economics. A former newspaper reporter and senior editor at the Cato Institute and the Institute for Humane Studies, Sheldon is a graduate of Temple University in Philadelphia. He blogs at Free Association. Send him e-mail.