Steel Trap: How Subsidies and Protectionism Weaken the U.S. Steel Industry

Cato Center ^ | 3/14/02 | Daniel Ikenson

[MonroeDNA]

Trade Briefing Paper No. 14 March 1, 2002

Steel Trap:
How Subsidies and Protectionism Weaken
the U.S. Steel Industry

by Daniel Ikenson

Daniel Ikenson is a policy analyst at Cato's Center for Trade Policy Studies.

Executive Summary

On March 6, President Bush is expected to announce specific Section 201 measures to further protect the domestic steel industry from import competition. By any relevant economic measure, the costs of protection will far exceed the benefits, and any benefits accruing to steel firms from that protection will be fleeting.

Section 201 relief for steel producers could invite WTO-legal retaliation against other U.S. export sectors, undermine prospects for trade agreements and related job growth, and saddle downstream steel-using industries with price hikes and supply shortages that will handicap them vis-a-vis their international competitors.

Protection will only prolong crippling overcapacity in the domestic steel market. 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 safeguard measures. Federally subsidized loan guarantees, pension bailouts, and "Buy American" preferences have likewise fostered uneconomic excess capacity within the industry and discouraged unsuccessful firms from the otherwise rational decision to exit the market.

The steel debate is not about "unfair trade." Antidumping duties unfairly punish foreign producers for engaging in practices that are routine and perfectly legal for domestic producers. Under the current definition of dumping in U.S. law, every U.S. steel company that is losing money is guilty of dumping here in its home market.

Claims that steel imports threaten national security are without foundation. A Section 232 investigation by the Department of Commerce recently concluded that domestic steel capacity far exceeds any potential needs of the U.S. military.

The U.S. steel industry--but more important, the country--will be best served if the president resists the temptation to impose new trade restrictions.

 

Text of Trade Briefing Paper No. 14 (PDF, 14 pgs, 92k)

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[MonroeDNA]

This should give the unions more heartburn.

[.cnI redruM]

It should! I'm tired of people who tell the politicians that such and such a product won't be available for defense and national security applications unless we protect it. Then when an Army Product Management Office tries to get a product or a set of software code written in a timely fashion, it's always behind schedule and over cost.

All of these domestic firms whine to the pols for tariff protection because it's a matter of national security. Then they turn around and screw over our national security like it's a $40 Vegas Ho. The protectionist argument is a lie designed to create economic monopoly.

[MonroeDNA]

Actually, it is to protect union jobs.

That's how it starts, anyway.

[AdmSmith]

The protectionist argument is a lie designed to create economic monopoly.

True, and bribe parts of the electorate to get votes. It only works in the short run.

If the politicans had supported the steam engine and prevented the otto engine from entering the market in the US, would we have GM or Ford?

[Libertarianize the GOP]

http://www.freerepublic.com/perl/bump-list

[Willie Green]

The truth is that, nationwide, organized labor representation of our blue collar workforce has declined to less than 15%.
In comparison, over 40% of government workers are unionized.
(Union affiliation of employed wage and salary workers by occupation and industry)

For all intents and purposes, the extremists who have hijacked the Democratic Party have all but abandoneded representation of the interests of the blue collar workforce. Instead, they have infiltrated the government and education sectors, wielding the abusive rhetoric of environomental and health-care regulation to demonize our industrial infrastructure and undermine our national security. This shift in political demographics was first noticeable during the Reagan Administration when blue collar support helped elect Reagan to two terms.

Unfortunately, the neocon pandering Bush Administration eschews this support. Rather, it chooses to "go with the flow" and not jeopardize transnational corporate profits with political confrontation.

Dubya's steel tariffs are a prime example of his preference for pandering over principles. While attempting to deflect criticism by implementing targetted tariffs, he simultaneously castrated any potential benefit with the issuance of hundreds of loopholes and exemptions for special interests. It was, in fact, the absolute worst policy imaginable.

Our nation would be much better served by an Administration that put such partisan policy making aside. In lieue of ineffective and harmful targetted tariffs that are perverted by special interests, we should be levying a relatively low (10-15%), flat-rate "revenue tariff" on ALL imported goods -- with NO loopholes or exemptions. The proceeds from such a tariff could then be utilized to finance further reductions in other forms of domestic taxation without bankrupting the Treasury. Such a shift in tax policy would both stimulate domestic production and our economy, while enhancing our National Security and self-sufficiency.

[nyconse]

Really, I suppose it's my imagination that the textile industry is gone, the electronics industry is gone and the auto manufacturers have lost over 30% market share-one Chryslers has ceased to exist. Free trade is the reason the steel industry is crippled. why should American worker compete against enslaved and extremely low wage workers? I say bring back the tariff. A country that produces no hard goods can not remain an economic power in the years to come. The myth here is that free trade is good for America. It is not. A corporation has the right to make any profit it can, but when it buys inferior steel from abroad or moves their plant to another country to make the maximum ....profit-while Americans loose their jobs, it's just plain greed.

[Rudder]

I cordially invite the author to spend an evening with me in a few of the local bars here in the Ohio Valley--the ones where the steel workers hang out.

[MonroeDNA]

I would guess the author would prefer intellectual arguements, rather than emotional.

As would I.

[Rudder]

I would guess the author would prefer intellectual arguements, rather than emotional.
As would I.

Yeah, it's a real shame that people whose entire existence is on the line cannot remain detached and aloof. You deserve real credit.

[MonroeDNA]

Thanks!

Check out my profile. Ever lived in your car? I have. Mosquitoes in Huston, in the summer, are amazing.

And somehow I never asked anyone for anything, nor blamed anyone for my troubles.

Then again, I am a man.

[AdmSmith]

Free trade is the reason the steel industry is crippled.

May I answer with a quote from Lewis Carroll:

"Now here, you see, it takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!"

[veracious]

Protecting our ability to manufacture core materials should always be a priority, no matter what the cost. When the day comes that we are dependant upon other nations for all of our defense and other materials, survival is not going to happen.

[Cyanfire]

don't know how to start this post :S, just check out this site and do some research on the WTO.

http://thoughts.editthispage.com/stories/storyReader$138

"The gap between rich and poor.

The poorest countries are the ones which are outside the international trading system. The poorest of all used to be those which pursued self-sufficiency (this is the most destructive objective any group can choose) or which are so rebellious, anti-market, war torn or disease afflicted that no one wishes to trade with them. Such countries beg for loans so that they can temporarily enjoy the benefits of markets and then beg to be relieved of their debts so that they can borrow some more. Ideally their population should convert into pro-market thinkers and then they have to figure out how to end the war, find a way of living in peace and then of tackling the diseases. If they can manage those immense challenges they must work hard for 1 or 2 generations and they would become some of the richest people on earth (South Korea went the pro-market hard work route and North Korea went the anti-market self sufficiency route. Now the 'evil' capitalists of South Korea send food to the 'self-sufficent' North Koreans who would otherwise starve.)"

My comment:

If you're going to prioritize self-sufficiency no matter what the cost, even without the disease afflictions of North Korea, the US will become MORE dependant on other countries unless they go promarket and follow the WTO laws and it's principles rather than abusing it to squeeze out more concessions out of the third world countries the US economy is already dependent on. Did I mention that the US economy would crumble without the oil from Saudi Arabia? where the human rights violations are worse than those in Iraq and Iran combined? As for the defense, who are you going to fight? it is the US who supplies the largest portion of weapons on the market as it is a major industry for US markets, selling 10 year old weapons to developing countries. I think it's time to end the paranoia, don't you? I'm personally more worried about the US becoming another North Korea, I think it would be a major blow to the egos of alot of people if the US is dependent on Mexico for basic necessities.