Should National Security Issues Limit Imports of Foreign Steel? (Point Couterpoint Turbulent Times).

JON JENSON ARGUES: There's a great deal of mythology in all of this. What you have are non-competitive integrated producers seeking a bailout on the backs of American consumers and taxpayers. In doing so, they threaten far more jobs than they protect.

But no amount of protectionism will improve the availability of U.S. steel, nor the competitiveness of U.S. producers. Imports have become the whipping boy for the problems that certain integrated producers are experiencing.

There are five reasons why steel-using manufacturers oppose restraints on steel imports. The first is simple: They don't work. Everyone sees the need for a strong and vigorous domestic steel industry. But restrictions on steel imports won't make American producers stronger. We've had 30 years of intermittent protectionism, and we're right back to ground zero again in many ways.

Steel imports are the result, and not the cause, of the integrated mills' inability to compete internationally. The root causes of their problems are such factors as high energy and raw materials costs, poor productivity, unfortunate management decisions, and outdated technology. Retired steelworkers' health benefits, for instance, add nearly $30 to the integrated producers' per-ton costs. At the same time, you have to separate the different sectors of the steel industry. While the integrated mills are in trouble, the minimills are relatively profitable. Yet it's no surprise that they, too, support trade restrictions. Quotas or tariffs on imports would drive up prices, boosting the mini-mills' profits.

The second reason is that the U.S. steel industry can supply only 75 to 80 percent of total demand, so imports are not optional, they're a necessity. In fact, U.S. steelmakers account for 30 percent of steel imports in the form of raw or semi-finished foreign steel.

The third reason is that trade restrictions on imports would harm U.S. companies that consume large quantities of steel in making their goods, such as construction companies and automakers. Higher taxes or tariffs, for example, would increase the cost of their raw materials, squeezing their profit margins and making them more vulnerable to foreign competitors. Ultimately, some of those companies would be forced to move manufacturing bases elsewhere, costing U.S. jobs.

Raw steel has relatively little value until it is converted into useful components that go into our machines, conveyances, and other products. This is true in peacetime as well as war. These steel-using manufacturers are every bit as vital to our national security as the steel industry. They would be threatened disproportionately if new restraints on steel imports were implemented, since they must depend on imports of world-competitive steel to compete in global markets.

The fourth reason is that U.S. trade laws already protect domestic steelmakers from below-market imports. The domestic industry has won a number of anti-dumping cases. Most recently, the International Trade Commission (ITC) in August imposed sanctions on hot-rolled steel from Argentina and South Africa. (The tariff on steel from Argentina is 86 percent; on steel from South Africa, it's 9 percent.) The coalition of steel-using industries supports strong enforcement of existing trade laws. We object to blanket restrictions on foreign imports, including those from countries that are trading fairly.

Finally, sealing off the domestic steel industry could threaten America's relationships abroad. Already, 19 or 20 trading partners have sought consultation with the U.S. on this issue. That's a sign of real unrest.

In time, sanctions on steel imports could lead to retaliatory actions, resulting in higher prices for American consumers.

RELATED ARTICLE: The Issue Explained

IT WOULD BE TOUGH to find an industry in worse shape than domestic steel. Over the past five years, 18 producers have sought bankruptcy protection. Despite some efforts to modernize, many manufacturers are still burdened with outmoded technology and so-called legacy costs, such as the pensions and health benefits of retired workers.

U.S. steelmakers blame global overcapacity and foreign competitors that "dump" steel at below-market prices.

In June, President Bush asked the U.S. International Trade Commission (ITC) to investigate whether imports pose a threat to U.S. steelmakers. The inquiry is expected to conclude in late October, with Bush weighing in with his recommendations by late February.

A number of prominent, steel-using companies-such as Caterpillar, Emerson Electric, and Worthington Industries--oppose new restrictions on foreign steel. They have formed the Consuming Industries Trade Action Coalition to lobby Congress. Their argument: Protectionist measures will only slow the consolidation the aging U.S. steel industry must undergo to remain competitive.

Adding fuel to the fiery issue were the September 11 attacks. Several U.S. steelmakers now argue that domestic production is crucial to national security. Countering them are foreign producers and domestic users who point out that military equipment requires small amounts of steel.

JOHN D. CORRENTI RESPONDS: The U.S. steel industry does need to consolidate to run more efficiently. There are about a dozen integrated steel companies; in the end, there should probably be around four. But the industry will consolidate with or without trade restrictions--either that, or go bankrupt. Today, steel is selling cheaper than in 1974. At the same time, our electrical, gas, raw material, and labor costs are all up. Yet we can't pass along those higher costs to customers because we're competing against dumped, subsidized steel.

We need trade restrictions because countries such as Latvia, Poland, China, and others are selling their excess steel at a loss in the U.S., or they're heavily subsidizing their own producers. As a result, foreign suppliers can afford to sell their products at lower prices. You just can't make a profit in that situation.

I'm delighted President Bush has initiated a probe of foreign imports. The ITC's investigation has served as a warning to foreign producers: If you're a foreigner dumping steel into this country and you continue to do it, you're stupid. Already, the administration's actions are having an effect. Dumping has abated considerably in recent months.

I'm for free trade, but I'm also for fair trade. At the end of the day, the low-cost, efficient producer should win. But it should be on a level playing field. Dumping steel by $100 or $120 a ton is not right. Competitors shouldn't be subsidized, or get free gas or electricity from their governments.

Additionally, in the case of war, we need a healthy, viable domestic steel industry. The recent terrorist attacks should prove that to legislators. We cannot depend on 25 percent to 50 percent of our steel coming from offshore.

I'd like to see two things emerge from the ITC's investigation: A determination that the domestic steel industry has been harmed by dumped steel, and a levying of retroactive duties, fines, or tariffs against all the countries dumping steel in the U.S. A second solution would be an overall quota or cap on imports. The penalty has to hurt. If you only slap their wrists, they'll do it again.

There have been successful antidumping trade suits. But the problem with those actions is that you can't file a suit until after the damage is done.

I disagree that trade restrictions would dramatically affect consumer prices. The average automobile, for instance, contains about one ton of steel at about $550 a ton. If those prices increased 10 percent, the increase in the car price would be less than $100.