Cheap steel imports hurt U.S. makers, but so what? Manufacturers benefit, it's not inflationary, and it may create jobs

OUTLOOK

Outlook

November 15, 1998|By Kristine Henry

LOW-PRICED steel from Japan, Russia and Brazil is undercutting domestic producers and forcing them to cut prices. American steel companies have filed complaints accusing the countries of "dumping" -- selling the steel at less than the cost of making it. The House wants the Clinton administration to ban steel imports from 10 countries for a year. Bethlehem Steel says the flood of imports may cause layoffs at its Sparrows Point Division.

But what does cheap steel mean to the manufacturers who use it? What's the bottom line for consumers, and how might it affect inflation?

Daniel Griswold

Associate director, Center for Trade Policy Studies, Cato Institute

While the rates [of imports] are discomforting to steel unions and the stockholders of steel companies, they're a boon for the much larger number of American steel users. The automobile, household appliances, food packaging and construction industries' employees, and ultimately the consumer, benefit from lower steel prices.

These are all competitive industries and the cost savings is passed on to the consumer.

Fundamentally it's a question of should the government intervene to benefit one industry at the expense of other industries and consumers in general?

The cost to the economy as a whole far outweighs any benefit to the steel industry.

It doesn't really have an impact on inflation. But I do think low-cost imports tend to increase real wages. The money in your paycheck goes further.

They'd be celebrating at stockholder meetings of the steel industry, but for the average American, their paychecks would go less far if imported steel were banned.

Richard Block

0 Professor of labor and industrial relations,

Michigan State University

One possibility [if the price of steel drops] is that the price of goods will go down or up less than they otherwise would, and the savings are passed on to consumers. The other possibility is that savings are received and the price stays the same, in which case the increased surplus goes to shareholders.

If the price of newsprint goes down, does it lower the price of papers? No. It's more likely the savings will not be passed on to consumers, but that's not to say it will never happen.

It should keep inflation down, all other things being equal. Where the price of foreign goods and services are low, it's more difficult for U.S. firms to raise prices.

At the same time, however, if the demand for foreign goods continues to increase and our exports decline, we could see less employment.

If as a result of this, if a million people pay 10 bucks less for a washing machine but 3,000 people lose their jobs in the United States, are we better off or worse off in the United States? What's a bad thing for us may be a good thing overseas. They may say, "We're just trying to survive out here."

Greg Mastel

Vice president and director of studies, Economic Strategy Institute, a Washington think tank

The effect on the ultimate consumer, the man on the street, is pretty small. Steel is an early-input product and it won't affect the price of automobiles. [The impact of steel on consumer prices] is a pretty tricky estimate to make; I'd be surprised if anybody has anything credible at this stage.

It won't affect inflation, at least not in the short term. It's a very big economy and lots of other things come into play.

Inflation is not one of the top five concerns regarding our economy. The impact that the steel industry could have on inflation is really pretty small.

Steel is like a canary in a coal mine. It's a fairly simple industrial product and it's widely traded, so the steel industry feels the effects of the global economy sooner. Other manufacturers may feel the effects the steel industry is feeling now.

David A. Levy

Vice chairman, the Jerome Levy Economics Institute Bard College

I think the way to really look at this is that this is one piece out of a whole tapestry of products that are under tremendous downward price pressure of the deteriorating global economy.

Certainly you can take a myopic look and say products will be cheaper and it's good for the consumer -- and it is -- and it's bad for domestic steel producers -- and it is.

You can also say it is good for other U.S. industries that use steel and are involved in global competition, and it is, but they're competing against companies who are also using cheaper steel.

Would falling steel prices make a major difference in consumer ++ prices?

The answer would be no. But if foreign companies can produce steel cheaper because of currencies or wages and we halt their exports here, then companies like Caterpillar and automobile manufacturers, railroad equipment manufacturers -- anybody who makes capital or consumer goods involving a lot of steel in international markets -- will be hurt because we're giving them a disadvantage.

Pub Date: 11/15/98

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