Keeping Steel Fetters Off Trade

As soon as the Asian crisis began, many economists expected that it would boost the U.S. trade deficit. Countries hit by the crunch are less able to buy U.S. goods and more hard-pressed to sell their own goods; as the U.S. economy was the strongest in the world, it appeared to be the importer of last resort, buying goods when no other economy could afford them. The biggest danger from the crisis, it was predicted, was that the U.S. might refuse to play this role, erecting barriers against world trade, knocking out the supports from the global economy and repeating the mistakes of the 1930s.

Unfortunately, this scenario seems to be playing out already. Last Thursday, the Commerce Department announced the trade deficit had hit its highest monthly level in history. Just the day before, the House has voted to approve a strict quota on steel imports, capping them at pre-1997 levels. Although the bill is expected to fail in the Senate, the 289 to 141 House vote for a blatantly protectionist measure shows how sentiment has changed in the few years since NAFTA was approved and how easy it is for matters to take a drastic turn for the worse.

When the global slowdown hit Russia, Korea and Japan, these countries responded in part by boosting their exports of steel to the U.S. The Clinton Administration initially played along with the demands of the steel industry and its unions. In his State of the Union address, Clinton warned of great harm to the steel industry from abroad and threatened tariffs against Japan. But how much harm has really occurred? The U.S. imported almost a third of its steel in 1998, up from about 25 percent the year before--a change, but hardly one which spells the death of the domestic steel industry. Even the estimate of 10,000 jobs lost in the steel industry pales in comparison to an economy which regularly creates 250,000 jobs in a month.

As the House Ways and Means Committee pointed out, the threats to steel producers from low-priced steel imports are outweighed by the benefits to industrial steel consumers, such as General Motors. Such companies employ about 40 times as many workers as the entire steel industry. Each dollar that workers in the industry gain from protected prices will represent one dollar taken from the pockets of workers employed at steel consumers.

Whenever we protect a single industry, we give a high-level handout to a well-placed special interest. Consumers have to pay the burden for the producer's gain.


To evade these issues, some in Congress have chosen to attach a mystical significance to the steel industry, exalting it above all others. However, the historical prominence of an industry should have little bearing on current policy. Rep. Dennis Kucinivich (D-Ohio) compared the quota to administration efforts to open Europe's markets to bananas, but his arguments at times verged on the absurd: "Bananas did not build America. Steel did...We cannot build a tank with a banana, we cannot build a plane with a banana, we cannot build ships with a banana. We did not build cars with bananas. We did not build bridges with bananas. We did not build America with bananas. We built America with steel."

However, no matter how great our emotional attachment to steel, it is clear that we do not depend on the industry nearly as much as those countries that are accused of unfairly exporting it. In Russia, for instance, steel represents about seven percent of total economic output--and given the shape of the Russian economy, every percentage point counts. On Feb. 22, the Commerce Department badgered Russia into "voluntarily" cutting its steel imports by 70 percent, leading even Commerce Secretary William M. Daley to recognize that "There is a legitimate concern about taking Russia to its knees." Blocking imports from a country already on the brink of financial and political disaster simply can't be a good idea. The result is a classic example of the right hand not knowing what the left hand is doing. The IMF is currently loaning Russia billions of taxpayer dollars, but how much of that money could be saved if we simply allowed U.S. consumers to buy Russian steel? Although the bill's supporters give lip service to the idea that the American economy is dependent on events abroad, the House vote shows a frightening short-sightedness. Even Clinton's own report to Congress in January notes that a recovery in Asia and other markets "would be the single most significant antidote" to the industry's troubles. If we start erecting barriers, the recovery will be that much more difficult

Yet the vote in the House was not only about steel. Minority Leader Richard A. Gephardt made no secret of his intent to make steel only the first step in a general protectionist program. He called for a plan "to combat the unfair imports" that have resulted from the economic crisis, saying "the U.S. should not be forced to unilaterally take in a massive global import surge." Such a move would be one of the most dangerous actions we could undertake. Removing the booming U.S. economy from the world scene would make recovery far more difficult, as well as probably end the boom. Also on Thursday, the Labor Department noted that trade had kept inflation low even as unemployment stayed at record-low levels.

Free trade may not be a magic cure-all. Promoting labor and environmental standards abroad can be a worthwhile endeavor. However, sacrificing world growth to promote the interests of the steel industry is not. If the U.S. is truly concerned about its industries and workers, the solution is not to protect them from the marketplace in which they have to compete. Stephen E. Sachs is a first-year living in Grays Hall.

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