Federal Triangle: Structural Defect
While manufacturing's share of gross domestic product has declined steadily from 27% in 1960 to about 13.7% today, total U.S. employment has grown with population over the same term and in the last quarter reversed a slight, two-year decline. With good fortune, job growth will now be sustained. But steel tariffs imposed by President Bush in March 02 and lifted last December harmed the economy badly, in my view the single most important factor to sustain recession and depress job resurgence.
Steel consuming industries have been harmed by those protectionist duties that nearly caused trade war with Europe, were declared illegal by World Trade Organization to which the U.S. subscribes, and will fester because the U.S. steel producers, integrated mills especially, continue to balk at becoming efficient. All using sectors have been hurt over the last two years. Reinforcing steel costs have risen 70% and structural steel costs are up 33%, increasing installed costs 7% to 10% and total construction up about 1.5%. Cold rolled flat steel prices have risen about 30% and so raises total product cost in lighting and appliance over 15%. The tariff of up to 30% on ten categories of imports allowed domestic producers to increase prices an aggregate 45% over two years ago. This unreversed price hike hit automotive parts suppliers hard; before the tariff they imported only 5% of steel ($5.4 billion in 2002) but the tariff let domestic makers raise prices on the 95% of domestic production used by these parts makers. So as of a few months ago, U.S. manufacturers had 12.8 million (M) employed in steel consuming jobs, 2.1 M automotive related, but only 226,211 jobs engaged in steel production. Over the 2002-03 years during a recession, it was bad policy to harm fifty workers in order to prop-up one (see table).
During this period of protectionism, thirty U.S. steelmakers went bankrupt and remaining mills produced 108 million tons (MT) in 2003. As one investment banker commented, "All bankrupt steel companies have something in common, the United Steel Workers of America." China meanwhile went from 100 MT total output in 2000 to 250 MT in 2003 and scrap prices have risen dramatically in a this time of growing shortages.
How this tariff protectionism was created is an intriguing tale, very complex and made complicated to discourage scrutiny. In their book "Antidumping Exposed," Brink Lindsey and Daniel J. Ikenson explore arcane worlds of import regulation. Antidumping cases worldwide have increased near exponentially in the last decade while America was the third most frequent target of complaint and the U.S. steel producers the single largest complaintant seeking relief. Proponents of antidumping laws claim that protectionism "levels the playing field" and "combats predatory practices," but in reality it does neither. What happens is that Department of Commerce receives petitions from producers, in total controlling 25%+ of U.S. production (successful 79% of the time), who affirm (yes 83% to 94%) that bad stuff happened. Then they have a kabuki dance; U.S. International Trade Commission makes a determination that "proves" improper pricing of imports without correct accounting for important features of market dynamics, items such as discounts, rebates, different selling costs, transportation, advertising, whatever. They can make answers come out any way petitioners want. The bottom line is U.S. government is complicitous with petitioners to stack the deck. An abominable offense is the "Byrd provision," named for the dottering West Virginia senator, that pays "dumping duties" directly to petitioners as a subsidy for their inefficiency; this technique is now law as agreed by 70 of 100 U.S. Senators. U.S. trade law and regulation and means to enforce them are a national disgrace.
The steel tariff has imposed great harm. As a protective means, endorsed by Congress but violating international trade law, it has harmed American industry that uses steel. The damage is being repaired by national economic recovery but structural defects of antidumping regulations still command correction.