Opinion Editorial: "The Steel Industry Revitalization Act"
by Jon Jenson
In this time of transition in Washington, US industries that rely on imports to stay competitive are hopeful that the Bush Administration's trade agenda will reflect the realities of the global economy. Calls for protectionism and other anti-competitive measures will do more harm than good - to consumers, workers and investors. The steel industry is no exception.
In a recent opinion piece, Andrew Z. Szamosszegi of the Economic Strategy Institute correctly states that the endless antidumping cases and other protectionist measures brought on by the domestic steel industry do not work ("To Bolster US Steelmakers, the United States Must Get Creative," January 17). Steel interests have filed dumping and subsidy cases by the dozens, and the industry is still in deep trouble. That clearly indicates that "dumped and subsidized imports" aren't the entire problem.
However, Mr. Szamosszegi's proposed remedy a government-sponsored cartel, i.e. an "OPEC for the steel industry" that would divide production worldwide and require production cuts is clearly anti-competitive and anti-market. The most recent spike in energy prices does not support the argument that we would be better off if we had an OPEC-like organization to control production for steel or any other essential product.
Before resorting to solutions that undermine our economic freedom, domestic steel companies need to first look inward for solutions. Steel companies in the U.S. are failing because of their own structural weakness. Their reliance on government handouts over the past 30 years and failure to modernize is at the root of their problems today. They are in a downward spiral from which they will not emerge without attracting capital, which is difficult if not impossible because of excess inventory and production capacity, excessive debt and overhead.
The fact is that those steel companies that recently declared bankruptcy could not make a profit even in good times, and government subsidies or protection will not save them. Attempts to pump more money into these inefficient operations will at best provide a temporary respite, but will also distort the market, and ultimately hurt those domestic steel companies that are successfully competing in the global marketplace. Protection is for losers, not winners.
Protection for the steel industry will also rob downstream industries of the raw materials they need to be competitive in their global markets. US companies rely on steel imports because US producers do not make enough steel or the right kinds of steel to satisfy US demand. Major steel-consuming industries (heavy equipment, industrial machinery, construction and transportation equipment) employ more than 40 workers for every one employed by the domestic steel industry. It is these consuming industries that would suffer if access to steel imports were restricted. Steel-consuming sectors will lose market share and jobs if they cannot get the products they need from competitive domestic and international suppliers. The harm to these industries in the United States would far outweigh any short-term benefit to steel companies.
The United States has been a leader in building our global free trade system. Creating artificial barriers and "Steel OPECs" is not the long-term solution for the real problem the internal structural problems of the domestic steel industry.
Jon Jenson is President Emeritus of the Precision Metalforming Association (PMA) and Chairman of the Consuming Industries Trade Action Coalition (CITAC)), an association of companies and organizations committed to promoting a trade arena where U.S. consuming industries and their workers have access to global markets for raw materials and other imports that enhance the international competitiveness of U.S. firms.