Viewpoint -- The Real Steel Story Of 2002

Dec. 21, 2004
The White House may be raising unattainable expectations in regard to the revitalization of the U.S. steel industry.

Predictably, the White House, in a written statement from President George W. Bush and in a press briefing by U.S. Trade Representative Robert Zoellick, tried to put a positive spin on its March 5 decision to slap tariffs of up to 30% for three years on a wide range of imported steel. There were lots of warm and fuzzy words about helping steel workers, the communities in which they live and work, and even the industry itself. And all this without harming a U.S. economy in recovery from recession. "America's workers are the most highly skilled in the world, and with effective training and adjustment assistance we will help them find better, higher paying jobs to support their families and boost our economy," the President pledged. Unfortunately, the President's words and his Administration's tariff actions gloss over a situation that is far more complex than they are willing, at least publicly, to admit. Indeed, predicated more on possible political gain than economic probability, the White House appears to be raising expectations about revitalization of the U.S. steel industry to a level that it will not be able to meet. The real steel story of the year 2002 has been more than three decades in the writing, and its major chapter headings are restructuring, overcapacity and national security. Restructuring. For 35 years, executives at integrated U.S. producers, those companies that make steel from scratch, have been complaining to Congress, the White House, the Commerce Department and the U.S. International Trade Commission about "cheap" foreign steel and how it has been hurting sales, profits and their firms' continued existence. They've pleaded and pleaded again for protection from foreign producers, and from time to time they've received relief from Washington, including some not-so-voluntary restraint agreements on imports during the administration of the current President Bush's father. But a generation of such second-chances for steel seems to have been squandered. During the 1980s, integrated U.S. producers were not continuing to restructure with the kinds of commitments that their European counterparts were. They were insufficiently alert to changing markets and to the materials substitution that was taking place not just in the U.S. but around the rest of the world as well. And whether through arrogance or ignorance, they did not take more-efficient mini-mills seriously enough. What's more, over the years, steel executives kept signing labor contracts that have now left them with about $13 billion in legacy costs. This is not a time for steel executives to be bellyaching about the unevenness of the global trade playing field. As long as the market forces they champion are relatively free to act, the field's never going to be level. This is, however, a time for steel executives -- particularly those at the integrated producers -- to see the world as it is, to come up with lean and agile competitive strategies, and to begin the challenge of changing their corporate cultures. Tariffs tend to make industries inefficient. Executives, if they really want their companies to be players in the global steel game, literally cannot afford to let their firms become less competitive. And if the executives have a compelling case to make for assistance in reducing legacy costs, they must do a better job than they have so far, first within their companies and among shareholders and workers, and then with what will be a rightfully skeptical Congress and White House. Overcapacity. In just raw numbers -- not taking into account the efficiency or inefficiency of production -- world steel-making capacity is way out of line with demand. By U.S. estimates, global overcapacity in steel is at least 200 million tons, 25 times the 7.85 million net tons that the American Iron & Steel Institute says U.S. steel mills shipped in January of this year. Corporate restructuring in the U.S. and elsewhere in world must take place in this context. Now is the time for the U.S. and other major steel producing nations -- including Japan and the 15 countries of the European Union -- to get serious about reducing capacity at talks taking place under the auspices of the Paris-based Organization for Economic Cooperation & Development. National security. In the middle of the last century it seemed that every country emerging from colonialism or economic deprivation put up a flag and a steel mill. They were statements of nationhood -- and symbols of national security. Today when cell-phone networks seem more likely to define nationhood, the question must be asked: How essential to any country's national security is domestic steel-making capacity? The question was neither anticipated nor answered in President George W. Bush's March statement announcing U.S. tariffs on steel imports. Nor was the question raised in Trade Representative Zoellick's press briefing on the tariffs. The question must now be raised and answered, especially in the U.S. How much and what kind of steel-making capacity is essential to protect U.S. national security? And the merits and costs of any subsidies to assure the existence of such capacity must be openly debated and clearly stated. Politics unquestionably played a role in the current Bush Administration's decision to impose tariffs on imported steel. In the calculus that determines which political party controls the U.S. House of Representatives, the Senate and the White House such states as Ohio and Pennsylvania do count -- a lot more than other states do. "Does anyone imagine [Bush] would have acted if steelworkers and the industry's estimated 600,000 retirees lived in the Democratic bastions of Massachusetts and Maryland?" columnist Robert J. Samuelson asked rhetorically in a recent Washington Post op-ed piece. But there is a political danger that the White House may have underestimated. Expectations are that two years from now when, presumably, President Bush will be running for re-election, tariffs will have significantly improved the U.S. steel industry's sales, profits and prospects for continued existence. But both the complexity of the real steel story of 2002 and the squandering of past opportunities for quantum change suggest that great expectations will be greatly disappointed. John S. McClenahen is an IW senior editor. He is based in Washington, D.C.

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