April, 2001: The Yankee Trader

By Greg Rushford
Published in The Rushford Report

Poor Bob Zoellick. A principled and educated man, Zoellick understands that steel imports are extremely beneficial to the U.S. economy. This isn’t rocket science. Imported steel is the raw material that creates millions of jobs for Americans who make things of metal: from airplanes, automobiles, tractors, office buildings, refrigerators, and on and on and on. Even executives at struggling U.S. steel manufacturers who constantly rail against import competition don’t want to roll back imports of the semi-finished steel slabs that their own operations require. But when I sent in the question to him last month, Zoellick — after contemplating for a week — declined to acknowledge this fundamental economic truth.

The reason that Zoellick has lost his economic tongue, of course, is politics. He’s too busy trying to help the U.S. steel industry roll back, or at least cap, imports through Section 201 three-year quotas and tariffs. While the economics of that are highly dubious, the politics are highly tempting.

This is because the steel lobby and its allies on Capitol Hill could deliver some goodies to help advance the trade agenda of Zoellick and his boss, President George W. Bush. Section 201 — which the steel guys crave — is Bush’s bait.
Bush wants several things in return. First, he wants the steel lobby’s help in getting fast-track negotiating authority from Congress, which the president would use to negotiate a new round of trade liberalizations in the World Trade Organization. Fast track would also help the negotiations to expand NAFTA into a Free Trade Area of the Americas (called FTAA). This might take all year, which is galling, considering that the Clinton administration could have had it back in 1995 if only then-USTR Mickey Kantor and President Bill Clinton had had the courage to ask Congress for it. Zoellick’s first year in office must therefore be spent in putting a negotiating opportunity back together that his predecessors wasted.

And if the steel guys would agree to clear the books of current antidumping actions in return for 201 — which is only common sense, as you don’t need antidumping tariffs on selected countries if the whole world is subject to restrictive quotas — this would help immeasurably in the WTO and FTAA talks. Steel has been the deal killer. The steel lobby’s rigid insistence that reform of the U.S. antidumping regime should not be on the agenda in any new WTO round helped kill the launch of a new round in Seattle in December 1999. Since then, the United States has picked up several pending antidumping embarrassments before the WTO, involving cases where dispute-resolution panels have found that the Commerce Department has administered U.S. antidumping laws in a WTO-illegal manner. There is also the infamous Byrd amendment that authorizes private domestic antidumping petitioners to rake in any tariffs collected on foreign steel by U.S. Customs. All this has caused deep resentment among WTO members. Section 201 could help the problems go away.

Zoellick’s ultimate goal is not fast track, but the 2004 presidential elections. Al Gore lost West Virginia last year partly because of his stance on gun control, partly because of Gore’s perceived environmental squishiness, and also partly because the Clinton administration wouldn’t give the steel guys a 201 deal. Crafting a deal to get the steel lobby off his back could also help Bush in key electoral states like Pennsylvania and Ohio. Very tempting.

Problem is, the steel guys are so unreasonable. They are insisting on a protectionist 201 deal that would hurt the overall U.S. economy. And they are unwilling to give Bush any political help in return for what they ask of him.
Last month, Zoellick learned — if he did not already know this — that it is not easy to try to do the decent thing for the steel lobby.

With the possible exception of the textile lobby, the steel guys are the most ungrateful, unrealistic wretches in Washington. They are sincere about taking tough-but-necessary 201 medicine to whip themselves into competitive shape much as O.J. Simpson is sincere about hunting down his ex-wife’s murderer.
Take fast track. The steel guys are indignant that they would be expected to support fast track in return for 201 protection. Last month, Leo Gerard, the new president of the United Steelworkers of America, issued a press release that “commended” the Bush administration for considering 201 relief. In the same sentence, Gerard blasted the idea of saying thank you with fast track. “There’s no way we’re going to allow our members’ livelihoods to be held hostage to the Administration’s push for Fast Track,” Gerard declared. “We won’t allow our members and the manufacturing communities they work in to be turned into a political football by Washington insiders.” Help us, and we will keep kicking you, Gerard is telling Bush.

Antidumping is even worse. The steel lobby wants 201 relief — tariffs and quotas against the whole world have been regarded as extraordinary and dangerous economics since Smoot-Hawley and the Great Depression of the 1930s — but still won’t swear off the antidumping habit. The steel industry is “highly unlikely“ to agree to any 201 quotas and tariffs that would also require them to give up the antidumping duties currently imposed on imports, Nancy Kelly reported in American Metal Market last month. Zoellick is expected to help the steel industry with 201, but the steel industry won’t help him defuse the antidumping tensions in the WTO.

It’s not just the unions that are being unreasonable. The American Iron & Steel Institute is also lobbying to dictate Zoellick’s priorities in any Free Trade Area of the Americas negotiations. “There will be no substantive changes of any kind” in U.S., Mexican, and Canadian antidumping laws, AISI demands. “The only subject with respect to trade laws where there is something to talk about is the need for greater transparency and due process in the way other countries, e.g., in South America, administer their AD/CVD laws.” AISI’s goal is to do kill the FTAA like it killed the so-called Seattle Round of WTO talks in 1999.

Steel lobbyists insist that their own interests be put ahead of everyone else in international trade — Boeing, General Motors, General Electric, Microsoft, banks, insurance companies, farmers, etc. — who wants trade liberalizations. The National Foreign Trade Council says, for example, that industrial tariffs in the developing world now average 39 percent, and that nearly forty percent of “industrial imports to developing countries are made under tariff categories that are not ‘bound’ by WTO at all.” Industrial tariffs in the rich countries only average 3.8 percent. This imposes “at least $64 billion in added annual costs on global industrial trade,” the NFTC’s Frank Kittredge said last month. You can see why launching a new WTO round is important to the biggest players in the U.S. economy. Yet the relatively small US steel lobby demands that its interests be put ahead of everyone else.

And what would that be? The steel guys want Congress to pass the Steel Revitalization bill (HR 808) to rollback steel imports five years. On top of that they want a $10 billion loan fund “help the steel industry finance continued modernization and ensure the survival of domestic employment and productive capacity.“ On top of that, they wand a federal “Taft-Hartley” like trust fund, financed by a 1.5 percent surcharge on all steel sold in the United States, to help them pay retiree health benefits. They also want grants “to defray the costs of environmental compliance,“ and so on. They want taxpayer help to pay what are called “legacy costs.” Legacy costs are the unwise and unaffordable deals the companies made with the union on pensions; the rest of us are expected to pick up the tab to keep old steelworkers happy in South Florida.

It doesn’t matter to the steel lobbyists that their quota bill is WTO illegal.
Last month, Zoellick said that he sympathized with the plight of U.S. steel manufacturers because the industry has “never fully recovered” from the surge in steel imports after the 1998 Asian financial crisis.

This isn’t quite what happened. The experience of Wheeling-Pittsburgh Steel Corp. illustrates what really has been going on in the declining U.S. steel industry.
As I reported at the time (see “Take This Foreign Steel and Put it Where the Sun Don’t Shine,” The Rushford Report, December 1998, page one), Wheeling-Pitt was shut down by a United Steelworkers strike from October, 1996 to August,1997. The company had only just begun to recover from that ten-month strike when the Asian financial crisis sent a surge of foreign steel to U.S. shores.
Another company that then blamed foreigners and not its own unions for its troubles was Acme Metals, which went into Chapter 11 bankruptcy in September, 1998. Acme hadn’t turned a profit for the previous seven quarters when times had been good.

Now Wheeling-Pitt is in Chapter 11. The company has been there before. Every time these guys come out of bankruptcy, we are assured that they are world-class competitors, that they have learned their lessons, and that everything would be fine if only the foreign competition would go away.

For Bob Zoellick, crafting a 201 deal for the steel whiners is like doing a deal with the devil. All this has been tried before. Every one of these plans has failed.
You can understand Zoellick’s reluctance to talk honestly about the obvious underlying economics: that the U.S. economy needs steel imports. But at some point, if a realistic 201 plan is to be crafted, someone in government is going to have to tell the truth to the American people about why the U.S. steel industry got into trouble, and what must be done to restructure it.

America’s shattered free-trade coalition won’t be rebuilt as long as officials are afraid that the protectionist politics are too tough to engage in honest intellectual debate.

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