American steel and international trade

Abstract

O ver the past fifty years, it seemed as if the American steel industry had to be dragged, kicking and screaming, into the world economy. Recently, however, signs are accumulating that the industry may be learning to live with globalization and modern technology. The steel industry and the U.S. government have always had a high-profile relationship. President Truman tried to nationalize steel in 1952. John E Kennedy imposed de facto price controls on the industry in 1962, largely on the grounds that "as steel goes, so goes inflation." More recently, the initiatives have run the other way, as steel unions and management regularly descended upon Washington, demanding tax breaks, loans, and protection from foreign steel imports. In 2002, responding to intense pressure from steel industry management and unions, President Bush imposed tariffs of up to 30% on a wide range of imported steel products. This was in spite of a spirited campaign against such a move by U.S. steel-consuming companies such as Caterpillar and automobile parts suppliers. Less than 18 months later, the tariffs were rescinded in the face of an adverse ruling by the World Trade Organization and threatened retaliatory tariffs by the European Union and Japan. All this was taking place at a time when the industry's shipments were running at near-record levels--and steel producers were importing substantial amounts of steelrelated products themselves. In 2003, the industry itself imported over 12 million tons of pig iron, sponge iron and steel slabs--more than the entire amount of steel imported in 1980. The industry has also received substantial inputs of foreign technical expertise and financial capital. British, Indian, Canadian, Korean, Japanese, Russian and Brazilian steel companies have made major investments throughout the United States. Making sound public policy in such a fluid and complex environment is not easy. But a critical starting point should be a clear understanding of the industry's problems and an appreciation of the impact on the economy of additional barriers against imports. At the same time, it makes sense to consider what alternative steps by management, labor, and government could be taken to put the industry on a firm, competitive course. Perhaps of even greater importance, an effort to understand the issues facing the American steel industry can throw light on some of the much larger and more general issues of how business, government, and the electorate should respond to the increasing globalization of national economies.