Opinion Editorial: "Continuing Threat of Restraints on Steel Imports"
by Jon Jenson
Precision Machined-Products Association Magazine
The Continuing Threat to Steel Availability
ITC recommendations and new economic studies give the President clear choices. Will steel-using manufacturers be heard?
There have been many developments in the steel issue over the past several months. Steel-using manufacturers are concerned about the continued timely availability of steel at world-competitive prices. The U.S. International Trade Commission (ITC) has found injury to domestic steelmakers from imports, and has made its recommendations to the President. A presidential decision is expected by early March. The Commerce Department has weighed in with an important finding regarding national security. The Consuming Industries Trade Action Coalition (CITAC) continues to advance the interests of steel-using manufacturers and American consumers in discussions with the Administration. Here is a brief review and update on the steel issue.
The Section 201 Investigation
At the President's request last June, the six-member U.S. International Trade Commission (ITC) began its investigation under Section 201 of the trade laws to determine whether the domestic steel industry has suffered serious injury because of imports. Hearings were convened in the "injury" phase of the investigation in early October, and, almost predictably, on October 22 the ITC found that 12 of 33 domestic steel product lines, representing some 79 percent of domestic output, have suffered injury.
The ITC then entered the "remedy" phase of its investigation, and convened extensive hearings in early November. Steel industry representatives argued for a range of trade remedies including 40 to 50 percent tariffs on steel imports. CITAC representatives opposed further restrictions on steel imports for a number of reasons. Among the 12 witnesses testifying on behalf of steel users were John C. Kennedy, President and CEO of Autocam Corporation, and James O'Donnel, Chief Financial Officer of Camcraft Inc. In a document filed immediately after the hearings, CITAC summarized steel consumers' concerns, pointing out that:
- The import relief proposed by domestic steel producers would neither fulfill the statutory purpose of the proceedings nor be effective in solving the problem.
- Tariff remedies proposed by domestic producers would result in severe economic harm to certain steel producers, downstream industries and the economy as a whole.
- Restraints on imports would not make the domestic steel industry more competitive.
- If the Commission were to recommend import restraints, it should propose exclusions and a workable "short supply" procedure.
- Tariffs or quotas should not apply to steel products already subject to antidumping or countervailing duty remedies.
- The Commission did not give adequate consideration to possible downstream effects of any remedy recommendations on steel-consuming industries.
On December 7, the Commission voted its remedy recommendations, which followed to a considerable extent the proposals of domestic steel producers, including quotas on a few items, and tariffs ranging from 20 to 40 percent on major steel product categories.
On December 19, the ITC officially informed the President of its remedy recommendations, initiating the "Presidential" phase of the investigation. The President has asked the Commission for further information, and now has until early March to make his determination. In this process he has wide latitude. He may accept the ITC's recommendations and act on them. He may modify them. Or he may disregard them completely.
To assist the administration in evaluating the economic consequences of the ITC's recommendations, CITAC commissioned econometric research. The study, using widely accepted methodology, evaluates the economic effects of the ITC's remedy recommendations on the U.S. economy generally and on steel-consuming industries specifically. Results of the research are available at citac.info, and reveal that the ITC remedy recommendations would cause far more harm than benefit. Among the key findings:
- Higher steel costs and greater competition from imports of steel-containing products resulting from the proposed remedies would lead to a loss across all sectors in the United States of as many as 74,500 jobs.
- Eight jobs in our economy would be lost for every steel industry job protected.
- Every state suffers a net loss of jobs under the proposed remedy recommendations, including states in the "steel belt."
- The remedy recommendations would not help the steel industry much, either. The proposed remedies would protect at most 8,900 steel jobs, at a cost to American consumers every year of up to $451,509 per steel job protected.
- Higher prices and other inefficiencies imposed by the proposed remedies would force consumers to pay as much as $4 billion a year, and decrease national income by as much as $1.4 billion a year.
In short, the national economic interest would not be served by the imposition of import relief. The costs far outweigh the benefits. Evidence of this mounted as, within days, two additional independent studies were released - one by the Brookings Institution, and the other by the Institute for International Economics. They both agreed with the CITAC study. All three sets of data pointed in the same direction. In fact, the Brookings Institution study predicted significantly greater job losses than those forecasted by CITAC.
The CITAC study was sent to the Administration immediately, and was the subject of a January 9 meeting between CITAC and members of the Administration's Trade Policy Staff Committee. Participating were staff representatives of the following agencies: U.S. Trade Representative's Office, Commerce Department, Council of Economic Advisers, Justice Department, Labor Department, Office of Management and Budget, State Department, and Treasury Department.
Meanwhile, in mid-December, talks between the world's main steel producing nations were held at the Organization for Economic Cooperation and Development (OECD) in Paris. The two-day session reportedly made progress in identifying overcapacity in the global steel industry that could be eliminated over the next few years. This is an effort that CITAC strongly endorses.
But, in light of the ITC's recommendations, the prospect that the U.S. would increase steel import tariffs by up to 40 percent reportedly affronted the European Union and others, causing threats of a trade war. In the aftermath of the OECD talks, there are uncertainties about the degree of international cooperation that will be possible if the U.S. imposes tariffs. Clearly the imposition of restraints on steel imports could seriously affect our international relationships.
In a more recent development of real significance, the Commerce Department reported on January 9 that it found no threat to U.S. national security from steel imports. The department concluded that "There is neither evidence showing that the United States is dependent on imports of iron ore or semifinished steel, nor evidence showing that such imports fundamentally threaten the ability of domestic producers to satisfy national security requirements."
In summary, after mountains of evidence have been introduced by both sides in the steel issue, the five basic reasons for opposing further restrictions on steel imports are still every bit as valid as they ever were. And the evidence is building. Import restraints should be opposed:
- Because they do more harm than good.
- Because they don't address the problem.
- Because steel imports are essential.
- Because adequate protection already exists.
- Because new trade restrictions would threaten America's relationships.
The Choices are Clear
With the increasing evidence that new tariffs on steel imports would negatively impact our economy, without significantly benefiting the inefficient integrated producers, the President has a clear choice in acting on the ITC's remedy recommendations. He can opt for sound economic policy, or he can seek political favor with the Steelworkers Union in key election states such as Pennsylvania and West Virginia. It's a matter of policy or politics.
Since the issue will likely be decided on the basis of political considerations rather than merit, it is critically important that individual steel-using manufacturers - including members of the precision machined products industry - make their views known to the administration and their representatives in Congress.
For its part, CITAC will continue to urge the Administration to adopt the following measures: (1) promoting expansion of the U. S. economy; (2) encouraging needed consolidation and restructuring in the U. S. steel industry; (3) addressing legacy costs for retired workers without punishing downstream consumers and without disrupting markets: and (4) working toward an international agreement to address excess inefficient global capacity in steel. With these steps, the President can let the market work to the advantage of American industries that produce and use steel, with the greatest benefit to all concerned.