Protection Racket

Dec. 21, 2004
Does the U.S. need to maintain basic industries? Experts differ.

As the U.S. International Trade Commission, at the behest of the Bush Administration, continues to investigate alleged dumping of steel by foreign producers, Washington so far is not answering a basic national-security question: Does the U.S. need to maintain a viable domestic steel industry to ensure the country's national security? The same question can be asked about assuring domestic production capacity for aluminum, machine tools, and semiconductors. For steel, the answer "seems to be yes," the same as it would be for petroleum, responds Russell Sutton, president and CEO of Ferguson Steel Co., an $86 million Indianapolis steel fabricator. "We need petroleum and we need steel to be able to conduct an ongoing defense should our supplies [from] offshore be cut," he states. Not so, counters Martin Anderson, a senior lecturer in management at Babson College, Wellesley, Mass. "If we truly got into a war in which all our steel was cut off -- [and] try to imagine that very difficult scenario -- we could simply recycle enough scrap to make whatever we needed, until we got our bombers and missiles off the ground," he argues. "More likely we would take over the foreign source with nuclear weapons," he predicts. What's more, Anderson bristles at the notion of protecting domestic steel from competition. "To put it simply, protection is always a stupid and counterproductive policy," he asserts. "The easiest way to keep a domestic industry is to open it to the full forces of global competition." The national-security argument for maintaining domestic steel capacity doesn't work either for Robert Reich, the former U.S. Secretary of Labor who now is professor of social and economic policy at Brandeis University in Waltham, Mass. One reason: diversified global sources of supply, he explains. Another factor: "Steel is less critical to national defense than it was years ago before new materials technologies provided many substitutes for steel." Those arguments are not persuasive enough for Thomas J. Duesterberg, president and CEO of the Manufacturers Alliance/MAPI, Arlington, Va. Even with U.S. ability to tap a "reasonably integrated" North American steel market, "it's probably important" that the country have some domestic capacity to draw on if there were a "real live shooting war," he contends. Nevertheless, Duesterberg says talk of subsidies to preserve domestic production capacity is premature. "We don't necessarily have to think about subsidy to maintain good chunks of our industry," he states. Pittsburgh-based Andrew Kapusta, metals director for the Lockwood Greene unit of J.A. Jones Inc., extends Duesterberg's thinking beyond steel to aluminum, machine tools, and semiconductors. Kapusta advocates maintaining domestic capacity in these industries, but rejects subsidizing them or imposing protectionist tariffs on imports. The U.S. doesn't "necessarily" have to have a basic steel industry, says Amy Glasmeier, a professor of geography and regional planning at Pennsylvania State University in University Park. However, she says, there's a strategic argument for maintaining a U.S. specialty metals capacity, which can be "encouraged through investments in science and technology, human skills, and things like that." Meanwhile, Edward Turzanski suggests the national-security question about the domestic steel industry may be outdated -- and misdirected. Such traditional strategic assets as steel, oil, coal, and gas "are not as critical to our security" as are breakthrough technologies and other capabilities that give the U.S. qualitative military and intelligence advantage, asserts Turzanski, a political science professor at LaSalle University in Philadelphia. "By far, the most important areas of technological challenge are maintaining qualitative advantage in air delivery of military personnel, material, and ordnance -- and [in] those technologies which allow the U.S. to discern the capabilities and motives of allies and adversaries."

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