Steel is testing America's mettle

Battle over imports could reshape trade attitudes

Basic industries

January 24, 1999|By William Patalon III | William Patalon III,SUN STAFF

Though Big Steel has waged an aggressive fight over the imported steel it says stands at the core of its current woes, the situation is much more complex than it appears on its face. And the steel spat could easily end up in this country as a referendum on free trade, industry analysts and other economics experts say.

"Is there a problem in the steel industry right now? Certainly," said steel analyst Charles A. Bradford, head of Bradford Research in New York City. "Is foreign steel a part of it? Absolutely. So is extreme overcapacity on the part of the U.S. So is inefficiency on the part of the U.S."

A bipartisan group of senators unveiled legislation last week aimed at stemming steel imports, the latest shot fired in the battle against foreign steel that's allegedly being "dumped" on U.S. shores.

Industry leaders, union officials and some politicians say what's been happening in the steel market here is a clear-cut case of foreign steel being sold here for less than the same product is being sold for in its home market -- the strict definition of dumping. In fact, there are even contentions that this steel is sometimes being sold here for less than it costs to make, essentially predatory pricing.

Proponents of boundary-less trade and allies of foreign steel firms contend that there is no dumping and that the U.S. steel industry is trying to enlist Washington to erect trade barriers to protect it during an uncertain period in the world market.

The U.S. steel industry itself is a big buyer of foreign steel, which it coats, processes or turns into other finished products for its steel-using customers, said David Phelps, executive director of the American Institute for International Steel, a Washington trade group that represents the interests of importers. The attitude of steelmakers seems to be "if the price is low, and we're buying, that's good. But if the price is low and our customers are buying, it's unfair, illegal, and I'm going to call my congressman and run to Washington," he said.

But the importance of what happens to the U.S. steel industry could serve as an early indicator of whether U.S. industry leaders, politicians, government agencies, U.S. economists and even consumers are equipped to deal with the many new challenges that the global economy poses, experts contend.

"Various polls I've seen say that a majority of the people are skeptical of the benefits of trade," said Daniel T. Griswold, associate director for the CATO Institute's Center for Trade Policy Studies, a free-market-economy think tank in Washington.

The surge in imports may be fanning protectionist sentiment in this country at a time when many experts are advocating an open U.S. market as a way to induce other countries to reciprocate.

In good times, this view might garner greater support. However, a recent Wall Street Journal/NBC news poll found that 58 percent of Americans agreed that foreign trade hurts the U.S. economy because cheap imports dampen wages and cost jobs. Only 32 percent said foreign trade spurred economic growth and, therefore, job growth.

But times are not necessarily good the world over.

The plunge in the currencies of countries such as Brazil and Russia and those in Southeast Asia made their products -- including steel -- cheaper than the U.S. competition on a relative basis. When foreign currencies fall against the dollar, the dollar buys more of those currencies -- and more of the foreign products priced in those currencies. In dollar terms, then, those products cost less.

However, the global meltdown has done more than make foreign products cheaper to buy. It shut down demand in the home markets of overseas steel companies, leaving the markets of Europe and the United States as the only big ones where real demand for steel remain. The countries that were the victims of the "Asian contagion," wishing to bolster their economies, have tried to use exports as a means of easing their countries' woes, and have targeted the United States, since economists say Europe has erected effective barriers to protect its market against dumped steel.

The U.S. steel industry isn't the only one feeling the fallout. Furniture imports were up 20 percent in the first 10 months of 1998, textile imports 6 percent and finished apparel imports 13 percent, according to Smart Money magazine.

But it's steel that's garnered the most attention, thanks to vocal company leaders and union members and vocal backing in Congress. According to industry figures, foreign steel made up about 35 percent of all steel shipments in the United States as of the third quarter, the most recent figures available, compared with 20 percent to 25 percent of the market in normal times. At one point, steel imports were accelerating at a pace that would give them half the market on an annualized basis, according to U.S. steel industry executives and industry figures.

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