Coordinated Strategy Needed for Steel Industry

John de Boer (University of Tokyo)

On March 7, US President George W. Bush decided to invoke a series of tariffs and quotas to be applied on steel imports to the United States. The decision affects up to 14 different kinds of steel products with applied tariffs ranging between 8 to 30 percent. These protectionist measures have Japan and a slew of global steel exporters furious and an international trade dispute is in the forecast. This week's review of the international media reveals a clearer picture of the motivation behind Bush's move to introduce these tariffs and follows international reaction to this decision.

According to David E. Sanger and Joseph Kahn of the New York Times, the primary motivation behind Bush's decision to introduce a "temporary safeguard" for the troubled US steel industry was gaining Republican votes for the up-coming congressional elections. Heavy steel producing states such as West Virginia, Pennsylvania and Ohio are "vital to the Republicans in this year's congressional election" wrote Sanger and Kahn. On the surface, with lawmakers such as Senator Carl Levin of Michigan rallying steel makers behind the argument that "American security hinges on preserving the steel industry, our weapons are made of steel. We go to war with what you make" (March 7, NYT), the move seems to have been ill conceived. Not the least considering that this logic could be used to justify protection for almost any industry participating in arms manufacturing, such as the computer industry for instance.

More fundamentally, however, Bush's program has been labeled by some US and many non-US news sources as inherently flawed. David Sanger and Richard Stevenson have outlined that the package did not include $10 billion dollars that the industry requested to cover health care and pension costs of retired workers (NYT, March 5). The British press criticized the proposal claiming that it did not deal with the core problems faced by the industry, namely a glut in the market. The BBC bluntly stated that there was global over capacity. Furthermore, it outlined that, "the steel industry is groaning under the weight of expensive staff costs, huge pension liabilities and it has failed to take the painful decisions already made by their European competitors" (March 7).

The impact of Bush's decision is global in scale with the worst affected countries being named by news sources as Japan, South Korea, China, Australia, Russia, Ukraine, Germany, Turkey, France, the Netherlands and Brazil. The European Union has already filed an official complaint and other countries are considering WTO measures.

In the case of Japan, the direct impact that these tariffs will have is unclear nevertheless it is the indirect impact that worries most producers. According to Reuters, the S&P has reported that Japanese steel makers will pass largely unaffected. S&P assessments indicate that, "exports to the US of Japan's five major steel makers represent only 5 to 6 percent of their total production" (Reuters, March 7). What most fear is that cutbacks in exports to the US could increase the flow of cheaper imports to Japan, flooding its markets and depressing prices even further.

The fact is that it is not only US steel makers that are in trouble. Bloomberg press reported on March 8 that four out of the five Japanese steel manufactures expect a combined loss of $1.6 billion in the current financial year. The BBC estimates that over 22,000 European Union steel workers have lost their jobs over the past four years. Considering the state of this industry, it is clear to most reporting on the subject that a coordinated strategy needs to be worked out between major steel producing countries to limit production and raise steel prices. Instead, unilateral action driven by selfish motives seems to have been the driving force behind such protectionist measures.

Articles:

• "Japanese steel loss to soar", Bloomberg News, March 8, 2002
• "S&P: Japanese Steelmakers' ratings unaffected by tariff", Reuters, March 7, 2002
• "Japanese steel firm sinks deep into red", BBC, March 7, 2002
• "Trade war looms over steel dispute", BBC, March 6, 2002
• Kozo Mizoguchi, "Japan, S. Korea react to steel tariffs", The Associated Press, March 5, 2002
• David Sanger and Richard W. Stevenson, "Bush imposes steel tariffs amid worries about reaction from allies", New York Times, March 5, 2002
• David Sanger and Joseph Kahn, "Bush weighs raising steel tariffs but exempting most poor nations", New York Times, March 4, 2002