BUSH SHOULD SHUN STEEL PROTECTION.

Byline: Robert Krol LOCAL VIEW

PRESIDENT Bush campaigned as a free trader. This week, the president caved to political pressure from the steel industry by initiating an investigation of alleged dumping of foreign steel in U.S. markets.

The International Trade Commission will determine whether steel imports have hurt domestic steel producers. If the commission rules in the affirmative, the president can impose antidumping tariffs or quotas to remedy the situation. This would be a mistake.

There is no clear economic reason to single out the steel industry as a candidate for special protection from foreign competition. Last year's tight monetary policy dampened domestic demand. Combined with a strong dollar and higher energy costs, most manufacturers have been hammered hard.

Manufacturing employment and profits have been falling since early last fall. Every time demand softens and industry prospects sour, steel executives and workers blame imports. They argue that limiting steel imports will save jobs.

The steel industry has been the beneficiary of trade restrictions since the 1960s. Yet, despite almost perpetual protection from foreign competition, employment in the steel industry has declined 60 percent since 1980.

This job loss has occurred in years when imports were both high and low. Imports are not the main source of steel industry job loss. Job loss in the steel industry is the result of continuing improvements in productivity. A CATO Institute study shows that in 1980, 10 man-hours were required to produce one ton of steel. Today, less than four man-hours is required.

It's not been imports, but increased productivity - brought on by competition from small, efficient, domestic minimills - that has caused employment to drop precipitously. Trade restrictions will not change this reality.

The problem with steel quotas and tariffs is that they will raise costs for downstream consumers of steel. The CATO study estimates that a steel price increase of $50 per ton would cost consumers $6 billion per year. Consumers would end up paying more for cars, appliances, and other products produced with steel.

The higher cost of steel will make products made with steel less competitive on international markets, reducing exports and jobs in these sectors. Steel users employ 40 times more workers than the steel industry itself. Companies that are heavy users of steel could be forced to shift production abroad if higher U.S. steel prices put them at a competitive disadvantage.

The potential job loss from downstream businesses is significant. As the United States closes its markets to foreign producers, governments around the world can be expected to follow suit. Already, following the U.S. lead, antidumping actions against the U.S. have increased almost 3.5 times since 1990.

Foreign competitors have learned to use antidumping rules to protect their own industries from U.S. competition. Retaliation to U.S. trade restrictions on steel will reduce U.S. exports, causing economic harm to another group of industries.

The steel industry is not facing a crisis. It must adjust to temporarily poor market conditions, not unlike other U.S. manufacturing industries. There is no basis for singling out the steel industry for special treatment. Antidumping tariffs on steel imports should not be imposed. They hurt consumers and downstream producers. They send the wrong signal to other countries - that protectionism is acceptable.

Imposing antidumping tariffs will make it more difficult to reach multilateral agreements on free trade. Ultimately, trade restrictions, such as antidumping duties, will reduce world commerce and standards of living.