Steel’s Protest on Imports Warns of Dangers to All

The protests of the American steel industry over a wave of imports from Japan, Russia, Brazil, South Korea and other nations are justified this time.

Furthermore, the issue here goes well beyond steel--an industry that now employs only 163,000 workers, a tiny fraction of the U.S. labor force.

The steel imports are part of a general unloading of goods this year by producers in Asia, Russia and Latin America, which are shipping to the U.S. market because it is the only economy in the world that is thriving.

“The steel industry is the canary in the coal mine,” says economist Greg Mastel of the Economic Strategy Institute, a Washington think tank. “Watch for machine tools, chemicals, semiconductors, apparel and other manufacturing industries” to suffer cutbacks and losses because the U.S. is being inundated with those types of goods from Asia and Russia. The flood of imports will continue to affect the U.S. economy for the next year or two, experts say.

The threat is broad. The U.S. balance-of-payments deficit, the overall category that includes trade in goods and services and international financial transactions, is headed toward $300 billion in the next few years--double the balance-of-payments deficit of 1997.

Those numbers mean the U.S. is piling up foreign debt. The fundamental danger, as with any case of extraordinary debt, is bankruptcy of the borrower--a downgrading of the dollar, severe disorganization of the world system. But that is a long-term, macroeconomic threat.

The immediate problem, if high levels of imports continue for several years, is that they will undermine U.S. manufacturing and discourage the development of efficient technologies. What’s the point of investing in greater productivity if other countries can simply dump goods on the market to earn dollars or dispose of overproduction?

The threats are real and Washington is responding. Commerce Secretary Bill Daley told officials of the European Union last week that European countries must absorb more cheap imports from Russia and Japan and not leave the responsibility solely to the U.S.

Representatives of steel companies complained to President Clinton at the White House and filed anti-dumping lawsuits. They charge that U.S. companies and employees are being injured because foreign producers are selling steel in the U.S. below the costs they charge in their domestic markets--which is illegal under U.S. law.

The lawsuits could get quick results. The White House can declare “critical circumstances” and impose duties on steel immediately, or retroactively if the duties are imposed early next year, explains Mastel, author of “Anti-Dumping Laws and the U.S. Economy,” a new book.

The issue is controversial. Trade protests from steelmakers have been dismissed in the past because of the industry’s own inefficiencies. Indeed, the Japanese steel industry charged last week that U.S. steelmakers were misleading the American public.

But this time Japan is doing the misleading. The surge of steel shipments from Japan has been extraordinary this year--running 16 times above the levels of 1997 at one point, says steel economist Peter Marcus of the PaineWebber investment firm. Now, in the face of protest, Japan’s steelmakers are turning down new U.S. orders, a spokesman for the Japanese industry said last week.

Blame the Asian crisis. The steel that Japanese producers could not ship to China or Southeast Asia or use in their recession-racked domestic economy they sent to U.S. markets.

But this time the flood was so great it riled even the most efficient U.S. producer. Nucor Inc., a Charlotte, N.C.-based company that never before joined trade protests, sent letters to Commerce Secretary Daley. “I believe in free trade,” says Nucor Chief Executive John Correnti. “But when I see our highly productive workers in Hickman, Ark., displaced by truckloads of Russian steel, I have to speak up.”

Nucor developed several modern methods for producing steel. Investing in production technologies and efficient mills, it has grown to $4 billion in annual revenue, producing 11 million tons a year, second only to U.S. Steel’s 12 million.

Nucor has demonstrated that through efficient production and profit-sharing, steelmakers can pay well and compete globally.

“Our production workers make $65,000 a year, and we’re competitive with anyone in the world,” says Correnti. But this year’s flood of steel-at-any-price proved too much.

It’s not just Nucor. “The whole steel industry has changed” in the last decade, says Tracy Shellabarger, chief financial officer of Steel Dynamics Inc., a small, entrepreneurial producer based in Butler, Ind.

Steel Dynamics is developing new ways to convert iron ore to produce steel inexpensively. It has been consistently profitable since starting up in 1993. But it has joined the industry’s anti-dumping action.

There’s a fairness issue involved. The U.S. steel industry has closed down 30 million tons of production capacity in the last decade. The industry has reduced employment by 400,000 workers in the last three decades. It has become efficient through sacrifice and acceptance of difficult changes.

U.S. producers are not arguing to keep out all foreign steel. The U.S. normally imports 20 million tons a year, one-sixth of the country’s consumption. But this year more is coming because of a distortion in the world economy.

Widespread recessions are one reason for the flood of imports. So an obvious solution to the problem would be a revival of the world’s economies. But there is a global overcapacity factor at work also. Goods are produced around the world in factories that should have been shut down long ago or never built.

“There is a global surplus of inefficient plants, not of efficient ones,” says economist Robert Crandall of Washington’s Brookings Institution. Yet countries keep inefficient plants running in order to keep their populations employed and then try to flog the resulting products on the U.S. market.

But now the feeling in Washington and in much of U.S. industry is that this has to stop. It’s the turn of others--particularly Japan, a rich society in many ways, with swelling trade surpluses--to accept difficult changes and reform their industries. The canary in the coal mine is warning of danger for many economies unless changes are made.

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James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.