Latest Fallout of the Asian Crisis: Rising Protectionism
The high-profile campaign against Asian steel imports being waged by U.S. steel mills is part of a pattern of rising protectionism around the world driven by the Asia economic crisis and related pressures.
Even as traditional trade barriers such as quotas and tariffs have come down, countries have turned in droves to one of the few legal remedies left: anti-dumping safeguards.
In today’s climate of economic fear across Asia, Latin America and Russia, experts say, such steps could prove dangerous if they lead to a global circling of the wagons against other nations’ products. That could slam the brakes on international trade and imperil economies everywhere.
“There’s been an enormous rise,” said J. David Richardson, a Syracuse University professor and visiting fellow at the Institute for International Economics. “There’s [now] almost a cottage industry in creating anti-dumping mechanisms around he world.”
The climate of protectionism was further illustrated by Japan’s decision last week to slap stiff new tariffs on foreign rice, a move described by critics as an example of backsliding by Japan’s leadership on its pledge of freer trade.
Strong political pressure by domestic industries and rising competition from hard-hit Asian industries partly explain why more countries are writing anti-dumping laws and filing cases to shield their home markets. The U.S., facing a trade deficit of as much as $300 billion in 1999, has filed 25 cases this year, compared with 16 last year.
But this machinery is no longer being used just by rich nations shielding themselves from low-wage competitors. The biggest growth in new users is among developing countries, a Congressional Budget Office study found this year, particularly Mexico, Brazil, India and South Korea. And more cases are on the way. A Japanese trade official said 83 nations now have anti-dumping laws in place, up from 25 in 1994.
At some point soon, the damage that anti-dumping cases do to U.S. exporters--by triggering retaliation overseas--outweighs the benefit of shielding domestic producers, Richardson said. Then Washington will start pushing for an end to their use globally, he predicted, probably within the next few years.
A claim of dumping--the selling of products overseas for less than they cost at home, thereby damaging foreign competitors--is a tool once used selectively to prevent unfair trade practices. The problem, trade experts say, is that it’s now being employed wholesale by nations to shield their pet industries even if their rivals are being completely fair.
The Asia crisis has tested U.S. tolerance and raised the prospect of more politically sensitive cases.
“An increase in these trade complaints is a certainty,” said Greg Mastel, an economist with the Economic Strategy Institute who favors their use. “Steel is only the first. Other industries are almost certain to follow.”
Under U.S. anti-dumping suits tentatively upheld by the government in November, Japanese mills face punitive import taxes as high as 60% for hot-rolled steel coil, a component in finished steel products. Similar complaints are expected against South Korea.
The steel cases illustrate the dangers: They threaten to undermine the Japanese and South Korean steel industries and hurt the nations’ beleaguered economies at a time when they’re trying to improve their fundamentals and contribute to global stability.
“Imposing duties on Japanese steel imports will only make it harder for Japan to restore domestic growth,” said Dan Griswold, trade specialist with the Cato Institute, a free-market think tank.
Because penalties would be applied retroactively, Japan has virtually shut down its U.S.-bound hot-rolled shipments. And South Korean companies have artificially restrained their exports to avoid a similar fate.
Politics aside, winning a dumping case against Japanese mills could also prove more difficult than expected.
There’s no doubt Japan and South Korea sharply increased steel shipments to North America--294% and 100%, respectively--during the first nine months of the year. U.S. steel prices also fell by 30%.
But huge volume increases and blistering competition are not in themselves dumping. Under a complex set of World Trade Organization rules, dumping occurs when imports are sold below the cost in their home country and when they can be shown to be damaging U.S. competitors.
On the first count, the South Korean currency, the won, depreciated 40%, and the Japanese yen fell 30% against the U.S. dollar this year before both partially recovered. In other words, all else being equal, those nations could lower their prices by 30% to 40% and still play by the rules.
Furthermore, if a mill’s production costs are low, there’s more room to reduce prices legitimately. South Korea’s Pohang Iron & Steel Co., or Posco, is among the most competitive steelmakers in the world, analysts say, and Japanese mills have aggressively cut workers, eliminated loss-making subsidiaries and lowered production costs.
The second test, proving damage to U.S. competitors, may be even more difficult, trade experts say. Although U.S. companies have clearly been hit hard by what some have dubbed an “import tsunami,” the strong U.S. economy has meant robust U.S. demand for steel.
Prudential Securities Inc. recently put out a “strong buy” on U.S. steel stocks. The expected protection resulting from anti-dumping cases was one factor, but the brokerage house also expects steel prices to rise worldwide amid growing demand by auto makers and other major buyers.
“We will stick by our three-to-five-year steel bull market,” Prudential said.
A robust market weakens claims of U.S. industry damage, particularly if U.S. mills couldn’t meet the demand anyway.
Merits aside, however, the anti-dumping laws in the U.S. and in most other countries are stacked against foreign producers, increasing the likelihood that local steel mills will receive protection, trade analysts say.
“The anti-dumping law isn’t fair and it wasn’t designed to be fair,” says Cato’s Griswold.
Meanwhile, the Japanese industry’s biggest tactical mistake may have been its failure to anticipate a U.S. backlash against such a sharp export surge.
Nippon Steel board member Hiroki Sasaki and fellow Japanese industry executives note that U.S. orders for steel were strong and that they expected continued growth and a shorter General Motors Corp. strike last summer.
Financial analysts see it differently. “They were desperate,” said Atsushi Yamaguchi, who covers steel at Jardine Fleming Securities (Asia). “It’s like people who are under water. They just want to breathe.”
South Koreans seem to have played the game better than their Japanese rivals, at least so far, with a more measured buildup.
At Posco Center, where even the oil paintings and sculptures are about steel, Deputy Marketing Director Lee Min Soo says Posco resolved after tough U.S. anti-dumping cases in 1992 to avoid future problems if at all possible. Even if you’re right, he said, you pay.
“You want to avoid the high costs, lawyers, all the preparation and investigations for years,” Lee said. “They know everything about you. All your company secrets have to be released. And it all hurts your integrity and name.”
This gives domestic producers an incentive to file questionable cases just to frustrate competitors. Both Japan and South Korea bemoan how political the steel issue has become, President Clinton’s call to stop the “flooding of our markets” being a prime example.
“When we see the U.S. president responding like that, we are quite concerned,” said Ahn Myung Soo, director of the North American section with South Korea’s trade ministry.
In the wake of the U.S. dumping accusations, Japan’s total steel shipments to the U.S. are expected to fall to 3.2 million tons for the fiscal year ending March 31, 2000, from the previous year’s 5 million tons, said Kenichiro Yoshida, analyst with Salomon Smith Barney.
Given the leading economic role that Japanese and South Korean steel mills play in those countries and their links to the shipbuilding, appliance and auto industries, this retrenchment could hurt.
If the Japanese industry’s factory utilization falls below about 80%, a break-even point, Japan could see a wave of mergers, layoffs and blast-furnace shut-downs, says Jardine Fleming’s Yamaguchi.
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Metal Matters
U.S. officials filed anti-dumping suits against Japan in September, after the country’s mills sharply increased total steel shipments to North America. South Korea has scaled back shipments here for fear of a similar fate. U.S. imports of steel from Japan and South Korea since January 1997, in thousands of tons:
From Japan
Sept. ‘98: 717,000
From South Korea
Sept. ‘98: 423,000
Source: American Iron and Steel Institute
Researched by JENNIFER OLDHAM / Los Angeles Times
