Steel quotas will harm U.S.

by Brink Lindsey and Daniel T. Griswold

Brink Lindsey is a senior fellow at the Cato Institute and director of the Center for Trade Policy Studies.

May 11, 1999

The Senate will soon consider whether to impose further restrictions on the ability of Americans to import steel -- restrictions that will come at the expense of thousands of companies, millions of workers and tens of millions of consumers.

Since last summer, the major steel mills and the big steel unions have been beating their steel drums for intervention against what was, at least temporarily, a rising tide of imports.

In response to a series of anti-dumping petitions, the Commerce Department has already slapped heavy duties or quotas on imported hot-rolled steel from Japan, Brazil and Russia -- reducing imports from those countries by 97% since November.

Not content, the steel lobby now wants comprehensive quota restrictions to place a three-year lid on steel imports. The House passed a quota bill in March by a 289-141 vote, and the Senate is expected to consider the measure any day now.

Imposing such quotas would punish the huge swath of American industry that uses steel, from automobiles and machine tool makers to construction, while driving up final prices for a range of consumer goods. Quotas would flout our commitments under international trade law and invite retaliation against American exports.

The steel industry claims it is facing a life-or-death crisis caused by rising imports, but that argument, never convincing, has melted away in recent months. The steel industry shipped 102 million tons in 1998, its second-best year in two decades. Although imports did rise last year by 33%, U.S. producers still supplied two-thirds of domestic demand. And as steel industries around the world slumped, America's share of global steel production actually rose in 1998 compared to 1997.

Meanwhile, steel imports have receded from the high tide of last autumn. Between November 1998 and March, steel imports fell by 30%. According to the latest numbers, steel imports in the first quarter of 1999 were below their level in the second quarter of 1997, before the East Asian economic turmoil hit.

The steel lobby argues that import quotas are needed to stem the loss of steelworker jobs.

According to the Bureau of Labor Statistics, about 10,000 fewer workers are employed in the steel industry today than at the beginning of 1998.

But such job losses in the steel industry have been routine for two decades. Since 1980 the number of employed steelworkers has dropped by 60%, from 400,000 to 160,000. The reason has not been import competition, but rising productivity. The industry required about 10 man-hours to produce a ton of steel in 1980; today it requires an average of less than four.

--------------------------------------------------------------------------------

In an economy of limited resources, jobs can be artificially prolonged at a steel mill only by cutting off jobs before they can be created in more dynamic sectors of the economy.

--------------------------------------------------------------------------------

This relentless drive for greater productivity has been fired by the spread of mini-mills, which turn scrap metal into a wide range of semifinished and finished steel products. From a 15% market share in 1980, mini-mills today account for almost half of America's steelmaking capacity. If Bethlehem, Weirton and other integrated steel companies want to blame somebody for their relative decline, they should point the finger at domestic competition, not foreign producers.

The federal government tried the quota route in the 1980s, imposing quantitative restrictions on steel imports from 1984 to 1992. Import penetration did fall, but so did steel industry employment. In fact, during those eight years the number of employed steelworkers fell by 78,300, an average annual decline of just under 10,000 workers -- sound familiar?

Steel employment will continue to decline as productivity increases, regardless of imports. Protectionism may slow the process somewhat but cannot stop it, and will jeopardize jobs in the much larger sectors of the U.S. economy that use steel.

In manufacturing alone, workers in the major steel-using industries -- transportation equipment, fabricated metal products and industrial machinery and equipment -- outnumber steelworkers 20 to 1.

Adding workers from the construction industry, another major consumer of steel, brings the total number of steel-using workers to 8 million, outnumbering steelworkers by more than 40 to 1.

Higher steel prices will drive up costs for consumers at home and abroad. If the steel lobby succeeds, Americans will pay more for cars, houses and washing machines.

Those higher costs will find their way into American exports, making them less competitive while making foreign-produced goods that contain steel more competitive in our domestic market.

In a recent speech in Dallas, Federal Reserve Chairman Alan Greenspan warned that protectionism will "slow the inevitable transition of the work force to more productive endeavors. To be sure, an added few years may enable some workers to reach retirement with dignity, but it will also keep frozen in place younger workers whose better job opportunities decline with time."

In an economy of limited resources, jobs can be artificially prolonged at a steel mill only by cutting off jobs before they can be created in more dynamic sectors of the economy.

Raising barriers to steel imports today will mean less opportunity tomorrow for our children and their children.

This article originally appeared in the Journal of Commerce.