Last month, this column described problems of (and caused by) "Big Steel" and promised to discuss solutions to these real issues. Over the past three decades, the vertically integrated steel sector (with six companies remaining) cost American taxpayers and consumers between $100-150 billion. The industry is still troubled and seeks more subsidies, which are undeserved.
Big Steel has been inefficient for the past four decades compared with the rest of the world industry, but has sought government protection from losses through legislative and regulatory methods that are deceitful. This industry sector claims that foreign steel makers dump product in the U.S. at prices below fair value, never defining the term. Dumping is selling below the cost of production or sale price in the producers' domestic market. If government determines that dumping has occurred, a tax equal to the difference between the foreign and U.S. price is applied to the import, artificially raising the price to U.S. consumers. The U.S. has more antidumping orders in place than any other nation. U.S. judicial systems are complicitous with the industry and union position. So foreign products subject to extra duties are more costly to consumers and drive away supply, which in turn provides leverage for domestic producers to increase prices yet further and defer investments to improve efficiency. This cycle of behavior is expensive and agitates U.S. trading partners, such as those in Canada and Mexico who are caught in the same current market disruptions and market weakening as are U.S. producers, but without the same protection. When this is viewed in light of world over-capacity of about 300 million metric tons annually, as estimated by the Office of Economic Cooperation and Development (OECD), it is not a pretty picture.