For reasons of national security, health, economy or other interests, every government controls imports

An Overview of Trade Restrictions

For reasons of national security, health, economy or other interests, every government controls imports.[3] Acting on behalf of American citizens, the U.S. government monitors, inspects, records, taxes, limits or reserves the right to refuse virtually every item to cross its borders. In fact, the U.S. government attempts to use trade restrictions to influence the trade policies of foreign governments all over the world, attempting to prescribe a morality that more closely represents the American norm, or to offer protection from competition to American businesses, industries and individuals.

The most direct method of protection available is placement of restrictions on the quantity, quality or class of commodity being imported for consumption. These import controls are barriers to trade. They may be in the form of simple tariffs that increase the price of a particular import, therefore reducing its appeal, or in the form of quotas to limit the quantity of a particular item competing with domestically manufactured goods. Tariff quotas, like those applied to U.S. steel imports, allow a set quantity of goods to enter the country and then levy a duty on further imports of the selected good. These controls are intended to benefit domestic consumers or punish exporters.

General Problems of Control

The design of the American system gives the authority to make many of the most important economic choices, including import controls, to elected or appointed representatives who may not always have the best interests of the represented citizens in mind at the time the decision is made. These officials are influenced by their own ideals, pressure from their directors and constituents, influence by political action committees, experts who work in the field being studied and protected, and foreign interests.

The decisions made by our representatives may have little effect or, in addition to achieving, or not achieving, the goals stated, they may have unintended impacts on people and industries never considered. To further complicate the decision process, the decision maker often does not answer directly to those most affected by the choices made. Commissioners of the U.S. International Trade Commission are nominated by the President of the United States for 9-year terms and must be confirmed by the U.S. Senate. There may be no more than three persons of any one political party seated at a given time[4]. ITC commissioners are not elected by U.S. citizens and, with a 9-year term, may not even represent the current political view of Americans.

There is, in a broad sense, no way to gain more of one thing without giving up something else. This may be an exchange of time, money, a product or service, or a future debt. The job of any party that wants to better its position is to discover the choice that yields the greatest benefit for the costs incurred. This choice is unavoidable and made difficult by the problems of analyzing the situation. The problems of analysis include a lack of information that is complete, accurate and timely and the difficulties of complete and impartial analysis of this data. Information is itself a scarce and valuable resource and great costs, in the form of time or money, may be incurred in its acquisition.^{^[5]}

The Current Steel “Crisis”

The History of the American Iron and Steel Industry

Iron and, later, steel have been used for 5000 or more years. Iron was smelted and wrought in Mesopotamia and cast in ancient China using primitive wood burning furnaces. The technologies used changed little for four millennia until the desire of people to perfect new iron and steel using technologies led to innovations in the smelting processes during the 15^th century. The new blast furnaces allowed the manufacture of better guns. Directly or indirectly, steel has had significant impact on world affairs. Wood for these furnaces eventually became scarce and, in 1709, it was discovered that coke, a form of coal that burns at very high temperatures, could be used for iron ore processing. This was the birth of the integrated mill. In the last two centuries, performance of the technologies has improved, but the underlying technology in the iron industry has changed little[6].

The steel making process has changed dramatically in the past 150 years. With every change, productivity has increased. The mid 1800s saw the introduction of the Bessemer converter processes, which were replaced by the open hearth process and electric arc furnaces (EAF) at the turn of the 20^th century. The open hearth was favored in the United States for its flexibility and improvements in the quality of the steel produced. The last Bessemer converter was finally abandoned in Pennsylvania in 1969, having been superceded by the basic oxygen furnace (BOF), which was introduced in 1954. No new open hearth furnaces have been built since 1958 and the last one in domestic operation closed in 1991.[7] The extinction of the open hearth furnace in 1991, and its previous decline, corresponds to a notable shift in the mix of production processes used in the steel industry and the timing of our current crisis.

Current State of Affairs in American Iron and Steel

Bankruptcies in the U.S. Steel Industry[8]
Company	Employees	Status
A1 Tech Specialty Steel Corp	790	Emerged
Acme Metals	1,700	Closed
Action Steel	140	Operating
American Iron Reduction	70	Closed
Bethlehem Steel	13,000	Operating
Calumet	210	Closing
CSC Ltd.	1,225	Closed
Edgewater Steel Ltd.	140	Closed
Erie Forge & Steel	300	Operating
Excaliber Holdings Corp.	800	Operating
Freedom Forge Corp.	1,120	Operating
GalvPro	60	Closed
Geneva Steel Co.	1,600	Closed
Great Lakes Metals LLC	40	Closed
GS Industries, Inc.	1,750	Operating
Gulf States Steel	1,906	Operating
Heartland Steel Inc.	175	Operating
Huntco Inc.	553	Closed
J&L Structural Steel Inc.	275	Operating
Laclede Steel Co.	1,475	Emerged
LTV Corp.	18,000	Closed
Metals USA	4,700	Operating
National Steel	9,283	Operating
Northwestern Steel & Wire	1,600	Closed
Precision Speciality Metals Inc.	200	Operating
Qualitech Steel SBQ LLC	350	Closed
Republic Technologies	4,600	Operating
Riverview Steel Corp.	60	Operating
Sheffield Steel	610	Operating
Trico Steel	320	Closed
Vision Metals Inc.	610	Closed
Wheeling-Pittsburgh Steel Corp.	4,800	Operating
Worldclass Processing Inc.	80	Emerged
Bankruptcies 1997 – March, 2002

According to the American Iron and Steel Institute, the U.S. steel industry has the best labor productivity in the world and, while its prices are among the lowest available to U.S. markets, restricted foreign markets, dumping and excess capacity have treated the U.S. steel industry unfairly.[9] It is also claimed that as many as 350,000 American jobs will be lost if unfair trade practices are not quickly remedied.[10] Finally, steel industry employees, members of the USWA, were urging the President to impose 40% tariffs on steel imports.[11]

In all industries, excess capacity and over production reduce prices. This is a function of supply and demand. U.S. prices for steel are at 20-year lows and companies representing 30% of American capacity have filed for bankruptcy.[12] The U.S. steel industry, in the period spanning 1986 to 2000, has increased production faster than the world totals while experiencing a decline in capacity utilization from 93.35% in 1995 to 79.2% in 2001.[13] The domestic production capabilities exceed demand for domestic production at the prices offered. When supplies exceed demand, prices fall.

(A note about data)

Not only has domestic production been increasing faster than the world production, but U.S. capacity has been increasing faster than production.

Domestic supply was also increased between 1997 and 2000 by a series of eight suspension agreements. The International Trade Administration (ITA), a branch of the Department of Commerce, by accords with previously restricted steel exporters, reached favorable agreements about pricing and quantities available for U.S. import. The countries affected included Brazil in July 1997 and China, Russia and Ukraine in November, 1997. By shear volume, though, these suspension agreements are dwarfed by the AD and CVD that were already in effect at the end of 2001. The ITA maintains a list of CVD and AD orders, and of the 263 AD and 51 CVD orders on their list dated March 15, 2002, more than half were directed at steel and steel products.[14] Interestingly, these active measures are against the same countries from whom the steel producers are seeking new protection.

One of the reasons capacity has outstripped production is that Big Steel has invested significant capital in EAF shops in an attempt to compete with mini-mills. When the 1998 steel crisis began, Acme Steel was in the midst of bringing a new thin-slab mill on-line. Increased availability of inexpensive imports coupled with start-up production problems left them scrambling to cover fixed costs. Geneva Steel was in the midst of efforts to modernize and was deeply affected by cash flow problems.[15] Surprisingly, even with slumping demand for their products and financial losses, U.S. producers have continued to bring new production on-line. The industry had losses in 1999 of 464 million dollars and one billion dollars in 2000, but still found it prudent to invest in 3.8 billion dollars worth of new assets.

Another problem of integrated steel mills are the so-called legacy costs. While manufacturers in the European Union were retooling and streamlining their operations, the big mills in the U.S. were signing new contracts with their unions. They offered lucrative benefit packages in exchange for lower wages. When they finally headed the warnings about mini-mills being their biggest competitors, it was too late. They had offered generous compensation packages in the 1980s while significant import protection shielded them from overseas competition and they thought the money to fund retirement packages would be there when they needed it. Now that they are in dire financial straights, they are unable to complete merger talks because of astronomical legacy costs, specifically 7.7 billion dollars in pensions that were not sufficiently funded and an additional sum for healthcare costs and workers’ compensation in the range of 5.5 billion dollars.[16] The federal government declined, for now, to guarantee these obligations, knowing that the real cost could be greater than 20 billion dollars. Were it not for these unchecked problems of the past, profitable companies might be able, through mergers and acquisitions, to save American jobs.

Recent Trends in the Structure of the Steel Industry

The 1960s and 70s saw major advancements in electric arc furnaces, but Big Steel continued to build BOF shops until 1991. EAF shops did not become popular and widespread until they proved they could produce consistently high quality sheet steel. Many integrated mills completed their own EAFs in the mid 1990s.

These EAF shops, which use scrap or recycled metals as their inputs to production, are commonly called mini-mills, though some are larger than their integrated predecessors. This is because, unlike the fully integrated steel mills, EAF shops have no need to produce coke. Because of their size, the production lots are typically smaller than integrated mills, making it economically feasible to produce smaller production runs and specialty steels. The long established industry leaders in the US have been entrenched in mass production for economies of scale that are no longer required by mini-mills to remain profitable. Presently, although electric arc furnaces are gaining share, BOF shops continue to account for more than half of US steel production.

In member countries of the Organization for Economic Co-operation and Development (OECD), there have been dramatic changes in the way business is conducted, most notably the shift to electric furnaces, new technologies in continuous casting, and exponential increases in efficiency. The type of person employed in the steel industry has changed as a result of the different responsibilities assigned to the workers. This puts a new face on steel.

In the 15 years ended in 2000, the U.S. steel industry has seen a 43 percent decrease in the average annual number of employees and, for the same period, an increase in production of 37.5 percent. This is a result of changes in employee type and motivation as well as technological advances and increased efficiency. The average rate of annual decline for the 10 years 1986 to 1995 was 3.8 percent and the average annual decline in employment for the five years 1996 to 2000 was only 4 percent. These small percentages hide the numbers of employees affected. In 1986, the industry employment was 174,783, with a total employment cost of $8.38 billion. In 1995, steel employed 122,613 at a cost of $9.48 billion. In 2000, 99,536 employees cost the industry $8.2 billion for an average employee cost of $82,372 each. Certainly, this does not represent the average steel worker, as these figures include all the industry executives, but the AISI published reports showing employment costs of wage earning and salaried employees including overtime and benefits show that hourly wage earners have an average annual cost of about $80,000 each in 2000. If trends continue, the hourly cost of employing an average steelworker could reach $50 per hour by 2007. It is estimated that, while the cost of employing a steelworker’s job is high, the cost of saving the job could be 732 thousand dollars.[17]

Industry	Total Hourly Compensation for 2001	As a percentage of Steel
Steel	$37.91	100%
All Private Workers	$20.81	54.9%
Construction	$24.08	63.5%
Manufacturing	$24.30	64.1%
Services	$19.74	52.1%

Outside Factors of Influence

Another factor affecting steel prices has been the Asian financial crisis. The relative strength of the U.S. dollar compared to the currencies of many exporters has allowed the U.S. steel consumer to purchase the same quantity and quality of product at the same home price for fewer U.S. dollars. Exchange rate benefits are an advantage to purchasers yet are viewed as illegal dumping by producers. It would be foolhardy for any manufacturer to intentionally overlook a commodity purchase at a lower price if the delivered quality is the same. Even if a foreign country is willing to sell a product for less than it costs to make, there should be no resistance. Of particular concern to steel producers in the beginning of the crisis (mid 1998) was the price of high quality Japanese hot rolled steel. It was available to American purchasers near the price of Russian steel, a lower quality product.[18]

In July of 1997, the U.S. dollar purchased a little more than 115 Japanese Yen, but in July of 1998, one dollar could buy almost 141 Yen. The situation was the same for Korean producers. The dollar bought 893 Korean Won in July of 1997 but 1296 Won only one year later. The purchasing power of steel consumers desiring Japanese and Korean steel had increased by 22 and 45 percent in only one year. While bad for the domestic steel producers, this was very good for steel users. Steel users include the steel industry which purchased, excluding pig iron, 30 percent of America’s steel related imports for further processing and resale.[19] A decline in the price of inputs should lower retail prices and increase consumer demand.

Import Increases for Selected Regions [20]

Product Group	Net Increase in U.S. Imports 1997-1998 (metric tons)	Increase in U.S. Imports from Japan, Korea, and Russia 1997-1998 (metric tons)	Import Increase from Japan, Korea, and Russia Over Total U.S. Import increase
Total Steel Mill Products	9,401,264	7,129763	76%
Finished Steel	9,022,490	7,690,081	85%
Hot-Rolled Steel	4,515,274	3,528,111	78%
Cold-Rolled Steel	355,290	485,715	137%
Cut-to-Length Plate	668,349	416,180	62%
Heavy Structurals	1,585,173	1270,203	80%
Rebar	478,900	565,909	118%
Line Pipe	309,952	310,226	100%

In Asia, the problem was made worse by a massive decrease in local demand. In the midst of a major financial collapse, new construction was extremely limited, which made foreign exports appropriate. At the same time, Russia, which had been supplying the Asian market, found that demand for its product was higher in the U.S. than Asia.

The Asian financial crisis can be seen as a direct contributor to the problems of the American steel industry. The reasons were not intentional but were rather a function of the free market President George W. Bush cited as an important part of the plan to encourage economic growth. The American Iron and Steel Institute, while asking for direct and indirect subsidies from the American government and American consumers, presents the following:

“…subsidies continue to distort world steel trade, harming U.S. producers and workers. Subsidies given to the steel industry sector worldwide have exceeded government assistance to any other industrial sector. … The Korean government has provided over $6 billion to the now bankrupt Hanbo Steel Company. The resulting scandal has made Hanbo Steel one of the worst examples of the Asian economic crisis and why it exists.”[21]

The American Response to the Steel “Crisis”

Increased restrictions on foreign imports in the steel industry were enacted by President George W. Bush on March 5, 2002. In a press briefing by U.S. Trade Representative Robert Zoellick, it was stated that “the President believes that free trade benefits America’s consumers and families and that it’s vital to generating jobs for America’s workers, opening markets for American products and service, and in spurring economic growth.” He then stated that some traditional manufacturing industries are unable to respond as quickly as desired to rapidly changing global economies and announced a plan to impose quotas and tariffs of up to 30% on major steel products in an attempt to strengthen U.S. steel companies during a period of significant global overcapacity.

Factors Affecting Policy Decisions

In the case of the U.S. steel industry, it seems important to note that, while profits have been absent for many of the largest firms, and, while unionized workers are being laid off, fired or losing their jobs due to bankruptcies, they have had money for other things. They have been purchasing political influence.

Between 1991 and 1997, the Big Three automakers (Chrysler, Ford and General Motors) and the steel industry contributed 5.7 billion dollars to representatives in the U.S. government. General Motors has since quit making and spoken out against “soft money” contributions. The Big Three contributed money intended to influence decisions that may have been good for U.S. citizens, but bad for steel and automakers. It appears that their influence helped create a pause in the Corporate Average Fuel Economy standards. Had Congress decided to continue raising the standard, there would have been costs and benefits. Automakers would have had to swallow large research and development expenses to increase fuel efficiency. Steel manufacturers might have lost more of the automobile market to composites, plastics and aluminum. The average American family could have saved $544 (54.4 percent of average expenditures) per year in gasoline expenses[22], although there possibly would have been a significant increase in automobile costs.

During the 1997-98 election cycle, 3.2 million dollars were contributed to Democrats by steel companies and the USWA. As an illustration of the anticipated effect of contributions, Republicans received 4.2 million dollars from the oil and gas industry[23]. The Republican Party has strongly supported the oil and gas industry, both in moves to lower crude oil prices and to open for exploration the Alaska National Wildlife Refuge. The ITC, currently 60 percent Democratic due to a vacancy that had not been filled as of April, 2002, has ruled in favor of the steel industry in Section 201 proceedings.

Big Steel is a general term applying to the large integrated steel mills, including recently bankrupt LTV, Geneva, and Bethlehem, the USWA, U.S. Steel, the American Iron and Steel Institute, and others. Big Steel has been very active in American politics. It hires and pays former elected officials with strong governmental ties to gain influence in ongoing actions and decisions of federal and local governments. The American Iron and Steel Institute (AISI) is a primary source of reference data in the steel industry. It provides statistics, data and analysis for organizations generally considered to be objective sources of information including the Bureau of Labor Statistics, the U.S. Census Bureau, and the Environmental Protection Agency. The influence of Big Steel and its representatives, after making nearly 14 million dollars of lobbying expenditures in 1997 and 1998, exerted pressure and helped to kill the Multilateral Steel Agreement in the 1990s. It did this to prevent loss of control of the timing of pending antidumping petitions. It has also been the key player in advertising and building public sympathy for the American Steel Crisis over the last few years.[24]

While AISI is certainly the most complete and comprehensive source of data regarding the steel industry, it might not be completely reliable. In December of 2001, the public information on their website contained a wealth of historical data available with a simple mouse click. As March 2002 approached, historical data (useful in trend analysis) became limited, showing only recent data that helped make the case for trade restrictions. Other factors contributing to the difficulty of analysis are a change from SIC coding to the new NAICS system and data that was previously freely available became available only for purchase from the new publication store.

The historically published data retrieved from microfiche at the Dallas Public Library, revealed discrepancies that were not obvious, but that had significant impact on the data presented. It seems that, while heavily promoting a steel crisis and the problems of a trend of increasing imports as a percentage of shipments, they have systematically presented misleading information on their most public source of data: www.steel.org. Changes and corrections to annual data are expected with time, but in the case of AISI, every annual statistic set includes preliminary current year data (shipments understated) and corrected previous year data. The net effect is that their annual trend analysis always gives the appearance of a larger than actual percentage representation of imports related to U.S. supply. These annual indicators are not corrected when then annual data are updated. Surprisingly, this is the data most often cited by news sources touting government action on behalf of the steel industry.

What are the Real Problems in the U.S. Steel Industry?

Proponents of trade restrictions under Section 201 have indicated that preventing illegal dumping by imposing tariffs on imports would save thousands of steel-related jobs.[25] The reality is that tariffs or restrictions will not save jobs.

While arguing for protection from competition to save jobs, the steel industry has embraced the concept of comparative advantage. It has begun outsourcing the jobs and functions of longtime steelworkers like metallurgical, engineering and market research to experts in those fields outside the steel industry.[26] At the same time, it is trying to prevent downstream purchasers from doing likewise. It wants to seek new ways to cut costs, but does not want steel consumers to have the same privilege.

As shown previously, employment in the U.S. steel industry has been declining for fifteen years.[27] Even with the newsworthy bankruptcy filings of LTV and Geneva, who have idled, but not released 20,600, employees[28], and approximately 30 other steel manufacturers, the American Iron and Steel Institute shows that most industry attrition has occurred because of factors other than the import crisis.

Integrated steel mills have been able to offer copious compensation packages to their employees because, over the last three decades, their profits have been protected from foreign competition by a series of import controls. In the ten year period spanning 1972 to 1981, wages in the steel industry almost doubled while productivity for the industry as a whole declined[29]. The large integrated mills tend to have collective bargaining agreements with employees who are compensated based on contracts rather than performance. There has been no need for the individual employee to strive for increased profitability or to seek innovations in their highly specialized positions. The reality is that often ideas or proposed changes are met by resistance from supervisors because they might harm the union’s position in the next bargaining round.

Earlier statements about increased productivity must now be addressed. In 1980, steel produced domestically required inputs of approximately 10 man hours per ton (MHPT)[30]. Currently, at some of the most efficient mini-mills, production can be completed with inputs of less than 2MHPT while the industry average is closer to 4MHPT. The large manufacturers with aging equipment need to invest large sums of capital in either new equipment or new techniques of manufacturing to keep up with domestic competitors.

Newer EAF mini-mills have located themselves far away from the centers of business occupied by integrated mills and have sought to be near their end markets or near scrap supplies to lower the input and delivery costs of their products. Rather than hiring specially skilled employees with integrated mill experience, they have found it more profitable to train young intelligent employees in a broad range of jobs to allow their workforce the flexibility to match the needs of the business. Often, pay is dependent on performance or plant profitability and innovations reap rewards for the individuals who propose them. The integrated mills finally appear to have seen the benefits of the mini-mills lean and efficient operating styles, but the unions have made it difficult to for them to respond[31]. These appear to be the difficulties of quick response mentioned by Robert Zoellick during the Section 201 relief announcement.

Despite the obvious conditions of the domestic industry and its related internal competition between integrated and mini-mills, the United Steelworkers Union insists that restrictions on imports will save steelworkers jobs; but there does not seem to be a strong correlation between job losses and the quantity of imports as a percentage of the domestic steel supply. However, it has been shown that there is a very strong correlation between MHPT as a measure of production efficiency and the decline in employment.[32]

Markets and Economies of US Steel

The four largest markets of the US steel industry are service centers and distributors, construction and contractors, automotive, and steel for converting and processing. For the fifteen years ended in 2000, these four main markets have represented, including exports, industry shipments of 65 percent in 1986 to 70 percent in 2001. Service centers have dominated, averaging approximately 25 percent of receipts. Service centers typically add value to purchased steel products by finishing bulk materials for resale. This may include complex processing or simply cutting material to the proper length for use. Service centers compete directly with steel manufacturers for the finished goods market, including the automotive and construction industries.

The automotive industry is one of the markets of greatest concern for iron and steel manufacturers because of prior changes in domestic policies that had unintended consequences on the steel industry. For 15 years, shipments to the auto industry have remained fairly constant as a percentage of total steel shipments by weight, increasing almost 59 percent while the steel industry as a whole grew by only 26 percent. However, there have been remarkable changes in the product output mix of the automobile industry. Production of light trucks has doubled in the same period, surpassing the output of cars. The effect on the steel industry is notable because, while automakers are making larger heavier vehicles, their steel consumption is not increasing proportionally. Another item of note was a 54 day strike by the United Autoworkers Association in 1999 that depressed demand for steel in the heart of the crisis.

Changes and Controls in the Automobile Industry

Corporate average fuel economy (CAFE) standards were enacted in 1975 to reduce dependence on foreign oil and to promote conservation of energy. These measures placed fuel economy restrictions on manufacturers of passenger cars and light trucks, a classification that includes sports utility vehicles (SUVs), mini-vans and pick-ups. The fuel economy requirements for each class of vehicle were initially very similar, but over time, the policies became increasingly more stringent for passenger vehicles than light trucks. This has become known as the SUV loophole.

The domestic manufacturing response to CAFE standards was to seek the measure that had the lowest cost to benefits ratio, which was to build lighter cars. Lighter vehicles require less fuel for propulsion. Within three years, as the price of gas rose, the American market saw a surge in imports, especially from Japan. Japanese vehicles were simply more fuel efficient. In 1981, voluntary export restraints (VERs) were implemented to protect the U.S. auto manufacturers. This protection was sought at a time when the auto industry profits were sagging, the American economy was in recession, and interest rates were at 18 percent, causing general demand to be low.

It is estimated that, during the period of 1986 to 1990, the VER benefited U.S. firms by 9.6 billion dollars. Because of price increases in domestic vehicles lacking unrestricted competition and markups by Japanese exporters, the American consumers not only paid for the increased U.S. profits, but also for the excess profits of the Japanese automakers. Excess profits resulted from changes in the Japanese marketing mix. While the Japanese were limited by the quantity of automobiles they could send to the U.S., they were not limited on the type. They shipped fewer economy cars and more high end or luxury vehicles. These costs totaled 12.4 billion dollars, or, when coupled with the benefits, a net consumer loss of 2.8 billion dollars.[33] The VERs were eliminated in the early 1990s.

In 2000, CAFE standards were 27.5 mpg for cars and only 20.6 mpg for light trucks. This may explain the desire of domestic manufacturers (including some Japanese firms that moved production to the U.S. to bypass VERs) to sell relatively expensive SUVs to the American consumer.[34]

Fewer large passenger cars are being manufactured, in spite of continued domestic demand for large family vehicles. This appears to be an inappropriate response by automobile manufacturers, and, in a free market, it would be inconceivable. In a free, competitive market, producers will produce what consumers demand, at the quantity demanded. In the American automobile market, production of too many heavy “gas guzzlers” in a particular class of vehicles will result in costly governmental sanctions. The American automobile manufacturer has found a solution in providing large heavy vehicles with all the comforts of a luxury car situated on a light truck frame. This package is called the SUV.

Besides changing the market offering, the auto industry has made another reactive change. They have begun using higher contents of plastic, aluminum and composites in the manufacture of new cars to reduce vehicle weight. These material substitutions and decreases in vehicle weight have two significant impacts. The first is difficult to measure economically but is significant. According to a study by the National Highway Traffic Safety Administration, a 100 pound decrease in passenger cars corresponds to an increase of 302 traffic fatalities[35]. The second effect of decreases in vehicle weight is a diminished opportunity for domestic steel. While weight reductions are prudent for the automobile industry, they have a large impact on consumers[36].

Substitutions

Aluminum and composites are relatively more expensive than steel, which helps maintain the automotive sector as a customer of the steel industry. Increases in the price of steel make the aluminum choice more attractive, as one pound of aluminum can replace two pounds of steel. The effect is compounded by increased fuel efficiency which means that, over time, consumers will spend less for fuel. The AISI contends that the average light truck class of automobiles contains 1,782 pounds of steel at a current manufacturers’ cost of 675 dollars. An increase in price of only 15 percent, or $101.25 per vehicle, equates to a retail price increase of only .3 to .5 percent of final value[37]. While these percentages seem like a small price to pay to protect the steel industry, they equate to a staggering sum in the consumer market. Had this 15 percent price increase taken effect in 1995, the total cost to consumers in 1999 would have been more than 5 billion dollars.[38] This amount of money could fund retooling in the automobile industry which would further impact steel.

Big steel has touted its low Producer Price Index (PPI) as a justification of government interaction to raise the price of steel. As we can see from the previous example, increases in the price of steel can have significant effects down stream. It is actually the relatively low PPI that has kept steel as competitive as it is. If the PPI of steel were as high as aluminum, the steel market would be much smaller than it is today.

Motor vehicle parts have also maintained a corresponding low PPI and are subject to changes based on the price of their inputs. Too great an increase in steel prices might drive automakers more quickly to aluminum, which could have compounding effects. As the weight of an engine decreases, the motor supports need to support less weight, which, in turn decreases the load bearing requirements of the frame. Aluminum is resistant to corrosion and would certainly be worth considering for undercarriages.

Conclusions

The U.S. Steel Industry Wants Import Controls

The U.S. steel industry has experienced tremendous problems. It has felt the effects of a worldwide recession and has lost market share to low priced imports. Steelworkers are losing jobs while some businesses close and worldwide overcapacity limits the remainders ability to earn profits. The industry has benefited from governmental protection from foreign competition for 30 years and wants more time to react to a changing marketplace of increasing efficiency.

The U.S. Citizen is Willing to Allow Tariff Quotas

The American citizen will allow restrictions on imported steel because voters are unorganized and misled by vocal proponents of protectionism. The steel industry, having everything to lose, is willing to spend tremendous amounts of money to influence trade policy while individuals see very little cost difference in any given purchase. American society supports the steel industry’s desire to place the blame for their internal problems on external sources. American voters do not want to see American workers lose jobs.

The U.S. Government will Restrict Imports

Government officials will not let the steel industry die. Not only do officials fear the repercussions of disappointing an organized voting block, but a concentrated advertising campaign affects the votes of a sympathetic electorate in a time when patriotism is high. The USWA members, former-members and their families represent more than 600,000 voters in important states. Any move to let the industry crumble could result in lost elections. Additionally, the best source of information about the steel industry is the steel industry and the people most qualified to analyze the data are people with experience in the industry who are sympathetic to its cause.

We Should Not Restrict Trade in the Steel Industry

We should not allow restrictions to be imposed on steel imports. The potential cost to America includes price increases and jobs lost in other industries. Further, we should not decide legislatively which businesses should survive and which should not. By imposing tariffs and quotas, we are not allowing steel users the freedom to find the products that work best for them - we are legislating which choices they will be allowed to make.

There is no doubt the U.S. steel industry is in the midst of hard times. The steel industry of the world, however, is not. Is there really a steel crisis? There are problems of overcapacity, but capacity problems tend to be cyclic. The U.S. steel industry, Big Steel in particular, is in the early stages of making necessary corrections. There is no long-term benefit to forestall those needed corrections. While the overcapacity problems of the steel industry are global, it is not in our own best interest to decide where the corrections should be made. Protecting American industry to the detriment of our trading partners allows our home industry to continue to operate in the same manner that has prevented it from being able to change as rapidly as necessary.

The American consumer reaps the benefit of depressed steel prices. While it is popular to point to foreigners as the cause of jobs being lost, we must not forget the jobs being saved. For every steel industry employee, there are more than 20 employees in manufacturing jobs that depend on steel for their employment. If we want to save jobs, we should let the steel users get the best prices available. We cannot save steelworkers from productivity increases or changes in technology, and we should not pay more for a product to support featherbedding or pay increases for one of the highest paid sectors in the country.

Notes and Citations

All steel industry figures not otherwise credited were compiled from “Annual Statistical Report” American Iron and Steel Institute, 2000, 1996 (return)

[1] Hufbauer, Gary Clyde, Goodrich, Ben, “Time for a Grand Bargain in Steel?,” International Economics Policy Briefs 01-9, Institute for International Economics, http://www.iie.com/policybriefs/news01-1.htm. under the heading “The Section 201 Investigation” – Most of the information here is available from numerous reporting sources, but the presentation here was well compiled and easy to follow, so it has been followed closely in presentation

[2] Hufbauer, Goodrich. See above - as the statements apply also to this paragraph

[3] World Trade Press, “Basics of Importing, ” http://www.worldtradepess.com/eit/wfb/ie/153eit.asp

[4] If you would like addition information about the U.S. International Trade Commission, you might visit them on the internet at http:/www.usitc.gov

[5] Miller, Roger LeRoy, Benjamin, Daniel K., North, Douglass C., “The Economics of Public Issues,” 12^th ed

[6] United States Environmental Protection Agency, “Economic Analysis of the Proposed Effluent Limitations Guidelines and Standards for the Iron and Steel Manufacturing Point Source Category,” EPA-821-B-00-009, December 2000 – Most of the information about the history of the iron and steel industry was obtained from chapter 2 of this extensive publication.

[7] United States Environmental Protection Agency, “Economic Analysis of the Proposed Effluent Limitations Guidelines and Standards for the Iron and Steel Manufacturing Point Source Category,” EPA-821-B-00-009, December 2000

[8] United Steelworkers of America, April 18, 2002, http://www.uswa.org/sra/Bankruptcies032002.pdf

[9] American Iron and Steel Institute, in the “Facts & Figures” area, http://www.steel.org/facts/power/unfair.htm

[10] Blecker, Robert A., Ph.D., “Jobs at Risk: The Necessity of Effective Relief for the American Steel Industry,” http://www.steel.org/images/other/blecker.pdf, February 2002

[11] “Thousands from America's Steel Communities Rally at the White House, Imploring the President to Impose 40% Tariffs on Imported Steel,” News for the United Steelworkers of America, February 28, 2002, http://uswa.org/press/countdownrallyrelease022802.htm – Another note from this press release is the quote that “strong tariff remedies … offers the President a rare opportunity to satisfy the concerns of critical voters by implementing actions that have been thoroughly documented and advocated by an independent, bipartisan agency such as the ITC.” If this is not political pressure, I don’t know what is!

[12] prices are at 20-year lows in the U.S. and 30% of the industry, by capacity, has filed for bankruptcy according to U.S. trade Representative Robert Zoellick in his USTR briefing on steel, March 5, 2002

[13] U.S. steel production was 10.37% of world output in 1986 and increased to 12.74% in 1996 and has slowly declined to 12.03% of world output in 2000

[14] The ITA lists 263 AD orders, of which 139 are directed at steel and of the 51 CVD, 30 are against steel. These steel counts do not include brass, tin or certain consumer products like cookware that are made of steel! To get an idea about what restrictions are in place, visit the ITA at http://ia.ita.doc.gov/stats/iastats1.html

[15] “Report to the President Global Steel Trade: Structural Problems and Future Solutions,” International Trade Administration, Department of Commerce, July 2000, pg 25

[16] Alden, Edward, “Washing ton puts high price on steel bailout,” Financial Times, http”//news.ft.com Feb 13, 2002

[17] Griswold, Daniel T., “A Wall of Steel,” Center for Trade Policy Studies, http://www.freetrade.org/pubs/articles/dg-7-8-01.html

[18]– available in its 200 page entirety at http://www.ita.doc.gov/media/steelreport726.html

[19] Burnham, James B., “U.S. Steel Industry Protection: Bad for America,” Policy Brief No. 197, McGraw-Hill, 1999, http:/www.dushkin.com/connectext/econ/ch15/burnham.mhtml

[20]“Report to the President Global Steel Trade: Structural Problems and Future Solutions,” International Trade Administration, Department of Commerce, July 2000 – This table was copied directly from the report on page 192 for its ability to illustrate the effects of exchange rates.

[21] AISI http://www.steel.org/facts/power/unfair.htm - they use the statement that subsidies to the Korean steel industry helped caused the Asian financial crisis as an argument for subsidies to the American steel industry.

[22] “Pocketbook Politics: How special-Interest Money Hurts the American Consumer,” Copyright 1998, Common Cause; http://www.commoncause.org/publications/pocketbook3.htm Note that the gasoline savings are according to a Sierra Club study that used CAFE standards of 34mpg for light trucks and 45mpg for automobiles and an average family gasoline expenditure of $1000 per year.

[23] Bailey, Holly, “Steeling Tax Breaks: A Battle for Benefits for the Steel and Oil Industries,” a Money In Politics Alert issued by opensecrets.org on March 8, 1999. http://www.opensecrets.org/alerts/v5/alertv5_07.asp

[24] Barringer, William H., Pierce, Kenneth J. “Paying the price for Big Steel. American Institute for International Steel,” Inc., http://www.aiis.org/test/four_b.html

[25] Representatives of the U.S. steel industry, in a letter to the President of the United States of America, Dated February 21, 2002, available for review at http://www.steel.org/news/pr/2002/images/feb21presletter.pdf

[26] Barnett, Donald F. “Factors Influencing the Steel Work Force: 1980 to 1995”. STI Working Papers, 1996/6, OECD, 1996 OECD/GD(96)127 pg12

[27] Actually, levels of employment have been declining for longer, but the scope of the data being reviewed and presented start with 1986

[28] Hufbauer, Gary Clyde, Goodrich, Ben, “Time for a Grand Bargain in Steel?,” International Economics Policy Briefs 01-9, Institute for International Economics, Table 1, http://www.iie.com/policybriefs/news02-1.htm

[29] Hufbauer, Gary Clyde, Goodrich, Ben, “Time for a Grand Bargain in Steel?,” International Economics Policy Briefs 01-9, Institute for International Economics, Table 1, http://www.iie.com/policybriefs/news02-1.ht

[30] Lindsey, Brink, Griswold, Daniel T., Lukas, Aaron. “The Steel “Crisis”and the Costs of Protectionism,” Center for Trade Policy Studies, CATO Institute, http://www.freetrade.org/pubs/briefs/tbp-004.pdf, pg 6

[31] Barnett, Donald F., “Factors Influencing the Steel Work Force: 1980 to 1995,” STI Working Papers, 1996/6, Organisation for Economic Co-Operation and Development, Paris, 1996. http://www1.oecd.org/dsti/sti/prod/wp_6.pdf, pg 11

[32] Lindsey, Brink, Griswold, Daniel T., Lukas, Aaron. “The Steel “Crisis”and the Costs of Protectionism,” Center for Trade Policy Studies, CATO Institute, http://www.freetrade.org/pubs/briefs/tbp-004.pdf, pg 7, figure 3

[33] Berry, Steven, Levinsohn, James, Pakes, Ariel, “Volunary Export Restraints on Automobiles: Evaluating a Strategic Trade Policy, Center for American Politics and Public Policy,” Occasional Paper series (96-2) Los Angeles, http://128.97.210.114/paper.htm

[34] Miller, Roger LeRoy, Benjamin, Daniel K., North, Douglass C., “The Economics of Public Issues,” 12^th ed

[35] Kahane, Charles J., “Relationships between Vehicle Size and Fatality Rick in Model Year 1985-93” Passenger Cars and Light Trucks, NHTSA Report Number DOT HS 808 570 January 1997, http://www.nhtsa.dot.gov/cars/rules/regrev/evaluate/808570.htm

[36] It should be noted that an effort to reduce injuries and fatalities resulting from lighter vehicles, air bags have become commonplace. Airbags have become a controversial topic as there are additional unintended consequences of their use – increased deaths in collisions that would have otherwise been non-fatal.

[37] “A Perspective on Steel Prices and Section 201 Relief: Why Temporary Quantitative Restraints on Steel Imports Will Not Cause Substantial Increases in Steel Prices,” AISI. http://www.steel.org/policy/pdfs/201PriceImpactcust_rem.pdf, pg 1

[38]These figures were derived by multiplying $101.25 by the quantities of light truck vehicles sold in the US for the years 1995 to 1999, presented in 1000s: 1995: 5306, 1996: 5448, 1997: 5858, 1998: 6013, 1999: 7025. Data prepared by Institute of Labor and Industrial Relations University of Michigan, et al. “Contribution of the Automotive Industry to the U.S. Economy in 1998: The Nation and Its Fifty States,” Pg 5, http://www.autoalliance.org/umstudy/umstudy-jan2001.pdf

for more information or comments, please contact me at jeremy@tiedyeguide.com