Surprise Defeat for Big Steel

by Steve Chapman

The Senate vote was the equivalent of dumping a bucket of ice water over the heads of steel management and labor, which have come to expect non-stop indulgence. The industry claims it is in crisis, but listen to its definition of a crisis: A year (1998) in which it shipped more steel than it has in 19 of the last 20 years and made profits exceeding $1 billion.

Never mind all that. Due in part to economic troubles in much of the rest of the world, foreign sales were up, prices were down, and workers were being laid off -- developments not to the liking of those who make steel. They demanded instant action from the federal government.

When the steel industry wants something, politicians generally start singing the Patty Loveless tune: "I Feel an Old Weakness Coming on Strong." Washington's first response was to give in. The Clinton administration accused foreign steel makers of not playing fair and pressured Russia and Brazil into reducing their sales here. The International Trade Commission slapped fat duties on Japanese steel. And in March, the House of Representatives passed a measure placing strict limits on how much foreign steel American companies can buy.

But senators apparently took the low prices as a chance to have some metal implanted in their backbones. When the House bill reached their side of the Capitol, they listened to the complaints about foreign "dumping," saw the commercials lamenting the plight of unemployed steelworkers, and heard predictions that the domestic industry is in danger of extinction. But when they were invited to take the familiar role of savior, they refused.

"Two weeks ago, we thought this bill might pass with a veto-proof majority," a senior administration official told The New York Times. Instead, protectionists could scare up only 42 votes for even letting the bill come to the floor.

How to explain it? Maybe it was the sheer economic folly of imposing a quota on foreign steel. Among the U.S. populace can be found 160,000 workers who produce steel and some 8 million who produce various goods that use steel. For every worker helped by the bill, 50 would be hurt. Not only that, but consumers numbering in the hundreds of millions would also bear a burden -- about $1.5 billion a year in higher prices.

As a way of helping steelworkers, this is spectacularly inefficient. Economists Gary Clyde Hufbauer and Erika Wada of the Institute for International Economics in Washington estimate that only 1,700 steelworker jobs would be saved, at a cost of more than $800,000 per job.

The jobs saved, though, would not be saved for long. Protectionists blame foreigners for the disappearance of 10,000 steel-making jobs last year, somehow failing to notice that shrinking employment is a regular feature of the industry in good times as well as bad. Since 1980, total employment has dropped by about a quarter of a million jobs. It fell even during the eight years the Reagan and Bush administrations tried to prop up the industry with "voluntary" limits on imports. Using import barriers to save steel jobs, we have learned, is like bailing out a sinking boat with a sieve.

The "problem" is that the industry is getting more productive. Twenty years ago, it took 10 man-hours to make a ton of steel; today, it takes less than four. So a lot of workers simply aren't needed anymore, and no amount of xenophobia will alter that reality.

Luckily, there are other places where they are needed, as evidenced by the 2.5 million new jobs created in the United States, on net, last year. The House's steel quota bill was an exercise in nostalgia, and the economy of the 1990s has been too good for most people to shed tears for the way things used to be.

Steel interests once got their way because they offered politicians a no- lose deal: If you help us, we'll reward you with votes and campaign contributions -- and the millions of people who are hurt will never even notice. But the success of the United States as an open economy means that other industries now mobilize against protectionism -- notably agriculture, which knows that foreign markets could be closed in retaliation for our steel protectionism.