Steel Protection

It is vitally important that policymakers gain a measured understanding of the full facts of the steel import question, rather than bow to the incessant claims of the demise of America's domestic steel industry at the hands of "unfair" and "illegal" imports. The industry and its handlers have relied on factual distortions and mass hysteria to conceal the telling facts.

Over the past three decades, U.S. steel producers have been shielded from foreign competition by quotas, voluntary export restraints, minimum price undertakings, and hundreds of antidumping, countervailing duty, and safeguards measures. Yet the industry's problems persist. Why? Because rather than strengthen the industry, protectionism fosters uneconomic capacity and discourages unsuccessful firms from the otherwise rational decision to exit the market. Continued operation of inefficient mills produces excess output, which suppresses prices, and jeopardizes prospects for healthier firms and their employees.

Steel protectionism is incapable of saving steel jobs. Employment in the steel sector has declined by more than 60 percent since 1980 largely because productivity growth - driven primarily by the success of America's mini-mill producers - has outpaced demand growth. Rising productivity is good for the economy; it provides workers with opportunities for higher paying jobs. Trade protection defers and complicates this process, though. It distorts market signals that might otherwise encourage new investment in new industries, and discourages workers from seeking opportunities these investments provide.

Consumers and producers in steel-using industries pay a heavy price for steel protection. Workers in the major steel-using sectors--transportation equipment, industrial machinery, fabricated metal products, and construction--outnumber workers in the steel industry by 57 to 1. These industries accounted for 13.1 percent of GDP in 2000, while steel producers accounted for only 0.5 percent. Protecting one industry - particularly a less economically significant one - at the expense of others is simply foolish policy.