The fuzzy math has done nothing to slow the coming conflict. In response to complaints from U.S. steelmakers, the U.S. International Trade Commission last week recommended a hike in steel tariffs of up to 40 percent. President George W. Bush will take those recommendations as a threat to the Paris steel summit this week. Major producers from Brazil to Japan are discussing ways to reduce a 250 million-ton excess in global steel-production capacity, which is undercutting prices and bankrupting manufacturers all over the world. Negotiators from Europe and Asia warn that the American tariff threats could provoke retaliation, even a “trade war.”
From its beginnings, dumping has been a trade weapon designed and wielded primarily by the steel industry. America made dumping a crime at the end of World War I, when protectionism was seen as a security measure. In 1916 the United States created the Tariff Commission to calculate costs of production abroad, so the nation could retaliate against dumpers with “scientific tariffs.” No one pretends such tariffs are “scientific” anymore, but they are still wrapped in the flag. After September 11, steel executives began arguing that steel should be protected from “foreign pricing”–no matter that the foreign effect on steel prices (unlike oil prices) is to drive them down.
This is an odd moment for a trade fight over anything. Last month negotiators agreed in Doha, Qatar, to a new agenda for global trade talks that had been stalled since the Battle in Seattle. The United States was the lone holdout against efforts to discuss dumping, but ultimately relented. The threat of a trade crisis ebbed–until now. Last week European Trade Commissioner Pascal Lamy called U.S. tariff threats a “perverse” signal “at a time when the ink is barely dry on [the Doha] agreement.”
America is hardly the only nation that has embraced anti-dumping rules. The U.S. laws were rarely acted on until a 1979 revision allowed private citizens to file suit. Dumping complaints skyrocketed, and trade rivals retaliated in kind. Over the next 20 years more than 50 nations wrote antidumping laws. In the 1990s the number of dumping complaints jumped by 50 percent worldwide. The United States was still the most frequent plaintiff, but also became a major target, and no industry was targeted more often than U.S. steel. The absurdities had come full circle. “Many governments like dumping because it is so murky, and the standard of proof is so low,” says trade expert Gary Hufbauer. “It is a very easy form of trade protection, particularly in the hands of an opaque government.”
America had created a weapon that now threatened its own interests as the world’s largest trading power. The steel industry kept the powder dry. Famous old companies like Bethlehem and U.S. Steel have been losing sales for decades to high-tech competition both abroad and at home in the form of new American mini-mills. Over a quarter century, the number of U.S. steelworkers had fallen from 570,000 to fewer than 150,000 when disaster hit. The Asian financial crisis of 1997 cut global demand and prices, setting off a surge of imports into the United States that has since pushed 27 steel mills into bankruptcy. In their recent pleas to the ITC, U.S. steel executives accused “predatory” foreigners of turning America into “the world’s steel dumping ground.”
The steel industry claims there was nothing natural about this surge of imports. It was not, they say, a normal result of a fall in Asian currency values, but rather a conspiracy among European and Asian steelmakers to protect their own markets and dump on the United States. In 1999 the European Commission fined members of the so-called Europe-Japan Club for unfair steel manipulation. But in 1999 Europe became a net importer of steel for the first time–suggesting that it can’t be harboring a cartel as all-powerful as the Americans claim. In his speech last week, Lamy lectured the U.S. steel industry to “get its own house in order.”
No one disputes that housecleaning is necessary. The old U.S. mills date to the early 20th century oligopolies run by families like the Carnegies, and remain strangely isolated from global trends. While European and Asian mills were consolidating in the ’80s and ’90s, the U.S. industry is still broken into firms so small, none are in the global top 10 producers. The roots of the problem lie in 1960s labor deals that committed Big Steel to generous benefits for a rapidly growing pool of retirees, a “legacy burden” of billions of dollars that has chased away buyers and blocked mergers. Now the old mills are asking the government to promote consolidation by assuming the pension burden. They claim governments in Asia and Europe are still building up their steel industries, so the United States should, too.
That could set back free trade by 30 years, to the heyday of state-built steel. A race to bail out failing factories could be more damaging than a tariff war, or tit-for-tat dumping charges, but it seems unlikely that Bush would go that far. His strategy looks more like an effort to buy time. The tariffs he is contemplating would be temporary, giving bankrupt steelmakers a couple of years in which to reform, or die a dignified death.
