Comments on AISI "Comments"

The American Iron and Steel Institute (AISI) offers a critique of the CITAC steel remedy analysis. When its bald assertions are stripped away, we are left with very little on which to comment. AISI offers no significant case against the validity of CITAC's study.

First, we should note that there are in fact three recent studies on the effects of new import restraints on steel, including the CITAC-sponsored study by Trade Partnership Worldwide. The others include the Brookings Institution study by Dr. Crandall and also one by Dr. Gary Hufbauer of the International Institute of Economics. Although the methodologies of the three studies differ in detail and produce somewhat different results, the thrust of all three studies is identical: steel import restraints will harm many more Americans than they will help.

We offer some additional comments on some of the more outrageous AISI criticisms of the CITAC study in particular:

  • The CITAC model takes the year 2000 as its benchmark. This means the steel prices prevailing in 2000 (higher than those prevailing in 2001), the world capacity prevailing in 2000, the profitability of the steel industry prevailing in 2000, etc. In short, it reflects precisely the reality of the steel market in 2000. Based on these assumptions, CITAC's conclusions are extremely conservative for the steel market in 2001.

  • Contrary to AISI's assertion, CITAC's definition of "steel" matches the coverage of the ITC's injury finding.

  • A major flaw in the AISI position is that it depends crucially on the assumption that domestic and imported steel are perfect substitutes for each other. If they are, U.S. producers can make everything that is imported and import barriers will merely shift demand to U.S. producers, steel-users will continue to get their steel and not have to lay anyone off. The problem with this assumption is that it is not true. AISI and its analysts assert it regularly, but can point to nothing in the economic literature that documents it. The reason is because a vast body of research on substitution demonstrates that domestic and imported steel are not perfect substitutes for each other. We refer the AISI analysts to work done for the U.S. International Trade Commission, by K. A. Reinert and D. W. Roland-Holst (1992), "Disaggregated Armington Elasticities for the Mining and Manufacturing Sector," Journal of Policy Modeling, 4:5, as well as P. Jomini, R. McDougall, G. Watts, and P.S. Dee (1994), "The SALTER Model of the World Economy: Model Structure, Data Base and Parameters," Canberra, Australia: Industry Commission. Those interested in the facts should also look at B. V. Dimaranan and R. A. McDougall (2001), "Global Trade, Assistance, and Production: The GTAP 5 Data Base," Center for Global Trade Analysis, Purdue University. Finally, the last 25 years of U.S. ITC determinations on steel feature numerous discussions of steel that demonstrate the limited degree of substitutability between imported and domestically-produced steel. We could also give AISI contact numbers for a number of steel consumers who know from experience how limited the substitutability of domestic steel is.

  • With respect to the CITAC model's assumption regarding labor and capital mobility, we followed an extensive set of empirical work on trade and employment linkages in the U.S. economy characterizes the U.S. labor market as being highly flexible (i.e., workers, at the margin, are very mobile). We refer the AISI analysts to Karen E. Thierfelder and Clinton R. Shiells, "Trade and Labor Market Behavior," Chapter 14 in Applied Methods for Trade Policy Analysis: A Handbook, Cambridge University Press, 1997, and Andrea M. Maechler and David W. Roland-Holst, "Labor Market Structure and conduct," Chapter 15 in the same, and D. Nelson and D. Greenaway, eds., Globalization and Labour Markets, Edward Elgar Publishing, 2001. The bottom line is this: the CITAC results would be even higher (more job losses) if labor were any less mobile than we assumed.

  • AISI misrepresents our results on price effects of the proposed remedies. While our domestic steel price effect is low, our price effect on imported steel is quite high. The total steel market price impact is roughly 4 percent. Average steel prices in the U.S. economy rise by a factor of roughly 10 times what the AISI says we predict.

  • The model fully reflects what happens to exchange rates as a result of the imposition of tariffs.

  • On jobs, the AISI critique is perhaps at its most absurd: in short, it argues that the job losses CITAC predicts are merely "theoretical," and as such should be dismissed. Those job losses will be real enough if the President caves into this self-serving and well-financed campaign for new corporate welfare. As for our evidence that CITAC members are creating jobs in a period of low steel prices, we refer AISI to page 12, on which we note: "[S]teel-consuming industries, many of them small businesses, have been among a very few job-creating industries in the U.S. manufacturing sector, even in recent years. Between 1997 and 2000, steel-consuming sectors added 848,000 jobs, compared to losses in the steel sector of 10,300 over the same period. It makes little sense to hit hard one of the few manufacturing sectors of the economy … that are creating jobs to bail out an industry that is going through a much-needed adjustment process."

Overall, the CITAC analysis is conservative and its conclusions are supported by two other independently conducted and funded studies. Our study neither says nor implies that the domestic steel industry should (or will) die out. In fact, CITAC has noted on numerous occasions that it supports and benefits from a healthy domestic steel industry. However, downstream users and CITAC customers are not able to bail out the domestic integrated steel producers based on empty promises of a brighter future for a few companies addicted to trade restrictions. The adverse consequences of import restrictions are simply too great.





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