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Steel’s Bad Habits

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President Bush unfortunately appears determined to make good on his campaign promise to extend import restrictions on steel for another five years when they run out at the end of September. That is bad news for American consumers, bad policy at a time when every effort is being made to free world trade and expand American exports, and bad medicine for American steel producers because it will encourage their bad habits.

When the restrictions were first imposed by President Ronald Reagan, much was made of the need for a few years to allow the U.S. industry to catch up with the rest of the world. The industry has done well in that period. It has eliminated antiquated facilities, reducing capacity since 1982 by 27%. In conformity with the import-restriction legislation, it has reinvested more than $9 billion in plant and equipment. And the industry has turned around from four consecutive years of massive losses to surging profits in the last two years. In the current steel boom, American producers are operating at better than 90% of capacity, and their exports rose 25% in 1988.

Nevertheless, the industry insists that it is still fearful of a flood of cheap foreign steel if the quotas are relaxed. The risk will certainly increase when, true to the cycles that characterize the business, the present boom collapses. In the meantime, however, many foreign producers, notably Japan, are not filling their quotas. Imports have fallen to their lowest tonnage since 1983, less than 21% of the market. And a tougher trade law has been enacted by Congress to add stronger defenses to unfair trading practices, making the demand for special protection less valid than ever.

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There may be room for compromise. Bush and his trade representative, Carla A. Hills, have promised to try to negotiate a global agreement ending all subsidies affecting exports and eliminating any excuse for quotas. That, however, is not going to be easy, and would be virtually impossible to negotiate quickly. The steel importers, trying to respond to Bush’s campaign commitment, have offered a compromise of their own: If the quotas must be extended, do it for a short period--three years at most--and be selective. One particularly useful suggestion is to remove semi-finished steel from the quotas. Imports of this product, while less than 15% of total imports, are increasing rapidly. Unfinished steel is fed into American integrated steel mills where it is then finished, providing employment both abroad and in the United States.

But the best solution is to let the quotas die. Congress is not bound by Bush’s campaign promise, and it is Congress that should refuse an extension. The competitiveness of U.S. manufactured products is an issue of even greater importance than employment in the steel industry. The nation’s steel-using industries, many of them major exporters, should not be victimized by import restrictions that can result in price inflation and irregularities in supply. The steel industry is on its feet. It is time for the federal government to let it stand by itself, not leaning on American consumers.

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