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House Put Politics Ahead of Economics by Supporting the President's Steel Tariffs

For Immediate Release. May 8, 2002The House of Representatives wrongly followed President Bush’s lead and overwhelmingly supported his imposition of substantial tariffs on imported steel.  This decision has put steel manufacturers and other American manufacturers at a disadvantage in the global marketplace.   For example, of all the steel imported into U.S. ports, domestic steel mills import between 25 to 30 percent.

Since the imposition of the tariffs, it has been easier for domestic producers to increase prices because low-cost foreign supplies are no longer available to the American market.  For example, the average spot, or market, price of hot-rolled steel sheet (the type of steel used for motor vehicle bodies and domestic appliances) has increased from $215 a ton in November to $290 in April according to surveys of steel buyers by Purchasing magazine.  Expected to increase to $300 a ton are prices for May and additional increases for the summer have been announced by some producers.

The fight for free trade in the U.S. for years was led by the steel industry.  However, today this same industry now fights for protectionism. 

For decades, U.S. steel manufacturers have benefited from varying degrees of import protection and subsidies because of their political clout.  For example, for the last 25 years more than $17 billion in government subsidies have been given to U.S. steel producers.  Furthermore, steel imported in 1981 from nine countries was, in fact, subsidized and being sold in the U.S. at unfairly low prices according to the Commerce Department in June 1982.  The government, as a result, imposed an additional tax on foreign steel that on some imports ran as high as $250 a ton.   Consequently, this higher steel price cost U.S. consumers at least $5 billion annually.

Too many mills during this time exacerbated their problems by making overtly generous deals with their unions and pocketing profits instead of capitalizing on their sheltered status to invest in new equipment and improve worker efficiency.

Now, the scales have been tipped by the emergence of a mature, efficient steel industry in Germany, Japan, South Korea and elsewhere.  Priced out of many foreign markets, the profitable North American steel market is in a struggle with foreign competitors.

The industry is also suffering from higher costs associated with environmental protection regulations and lagging productivity.  These increasing production costs have resulted in American steel users importing larger and larger quantities from foreign supplies because they are finding it more cost-effective since the cost of a ton of domestic steel is so high. 

However, able to undersell imported steel and increasing their sales are some small steel plants using advanced smelting technology the so-called minimills.   In fact U.S. steel imports actually declined 21 percent last year as a result of newer and better-managed mills.

At steel-using companies and at ports that handle steel, higher steel prices will also cost thousands of Americans their jobs.  This eventually will result in a ripple effect that is felt across the nation.  Jobs will migrate to areas where steel is lower in cost.  Across the U.S., companies may be forced to lay-off employees as a result of price increases triggered by the rise in tariffs.

Overseas manufacturers will not absorb the increase tariff imposed on them but will pass it on to the American consumer.  On every U.S. family, in a time of economic uncertainty, this will result in an additional cost burden of perhaps $200 or more.

“The U.S. steel industry should not be shielded from mismanagement and inefficiency by blaming their failures on foreign competition,” said Dr. Joel P. Rutkowski, president of the American Voice Institute of Public Policy.  “The best policy that the government could promote for the industry is allowing efficient mills to thrive in the challenge of world competition.  However, the governments current course of action will not give inefficient mills the incentive to improve but will harm the industry further and will cause prices to rise.  As usual politicians that claim their policies help the American people at election time in actuality will burden consumers with extra costs that could be used elsewhere to meet other family and individual needs.  In a time of economic uncertainty, those who will be hurt will be those that can afford it the least — the poor.”

For Interviews Contact:

Joel P. Rutkowski, P.h.D.
President, The American Voice Institute Of Public Policy
757-436-5927
jrutkowski@americanvoiceinstitute.org

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