Stop Steeling

by Don Boudreaux on October 30, 2006

in Trade

In a letter in today’s Wall Street Journal, Andrew Sharkey, President of the American Iron and Steel Institute, pleads for Uncle Sam to force Americans to pay higher-than-necessary prices for steel.  Here’s Mr. Sharkey’s letter, in full:

Your Oct. 17 editorial "Steeling Jobs"
misses the point of the sunset reviews before the International Trade
Commission, although there are some areas on which we agree. Yes,
America’s steel industry has gone through a transformation out of the
ashes of the 2000-2003 period. Through consolidation, new
labor-management agreements and streamlined operations, a low-cost,
high-tech, globally competitive U.S. steel industry has emerged with a
lighter environmental footprint. Meanwhile, the Commerce Department
points out that if the duties on corrosion-resistant steel, a high-end
product used in automobiles, appliances and construction, are lifted it
would likely lead to recurrence or continuation of dumping. As many
members of Congress, including House Steel Caucus Chairman Phil English
(R., Pa.), and the major steel producers explain, our steel industry
remains vulnerable, so why pull the rug out from under it when it is
just regaining its footing? The threat is from foreign governments
actively subsidizing excess capacity, which creates regional imbalances
that are already negatively affecting the global steel market,
including the U.S. The duties in question in no way affect access to
fairly traded steel, and there is absolutely no shortage of this
product available to the car companies.

The steel industry wants
the car companies to do well, but their profits should not be built on
access to steel dumped in violation of U.S. trade laws. GM Chairman
Rick Wagoner pointed out the true causes of the Big Three’s losses in a
speech earlier this year: health-care costs, lawsuit abuse and unfair
trading practices, such as currency manipulation. It is not the $19
profit that steelmakers earn from the corrosion resistant steel in each
$27,000-plus vehicle. Ultimately, any consuming industry can argue it’s
hurt by lack of access to illegally traded raw materials. If we fail to
enforce our trade laws, the destruction of competitive American
industries by government-subsidized foreign competitors is certain to
occur. Now that will be a true case of stealing jobs.

Andrew G. Sharkey III
President and CEPO
American Iron and Steel Institute
Washington

Here’s a letter that I just sent to the WSJ in reply to this little piece of shameful special-interest pleading:

Asserting
that foreign steel producers are subsidized by their governments,
Andrew Sharkey argues that Uncle Sam should artificially raise the price
that Americans pay for imported steel (Letters, October 30).  This
argument fails.

The only plausible case for preventing consumers
from accepting a gift of low-cost steel from foreigners is if such
subsidies threaten to oblige us to pay higher, monopoly prices in the
future.  But the likelihood of this outcome is minuscule.  As Mr.
Sharkey says, subsidies encourage excess capacity.  So for as long as
the subsidies continue, we enjoy steel on the cheap.  And if and when
the subsidies stop, the excess coke ovens, blast furnaces, and other
steel-making equipment don’t dissolve into thin air.  They’ll be around
to ensure that steel is supplied competitively.

Sincerely,
Donald J. Boudreaux

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Bruce Hall October 30, 2006 at 5:51 pm

That was an amazing rebuttal, except for one thing: it has no basis in reality.

When steel foundries are idled, the assets cannot necessarily be idled or restarted. Blast furnaces can't be readily shut down and restarted. There are costs associated with keeping massive facilities maintained while unproductive. There is expertise lost as jobs disappear and skilled people disperse to new locations or try to start new careers.

But just for argument sake, let's suppose assets can be idled without cost to a steel maker. When the time comes that the foreign companies and their government feel they are strong enough to keep their market gains because their competitors have shut down and they stop the subsidies and raise their prices, why then the idled companies suddenly and magically spring back to full production and enjoy competing in a market where prices are now much higher.

Oh, wait, these foreign companies and their governments can take the same action they took originally to idle all the "excess capacity" in the U.S. (or other Western nations) and then the original problems come right back… and that's assuming there are U.S. companies to come right back.

You might want to look a gift horse in the mouth; it may have hoof and mouth disease or worse.

faultolerant October 30, 2006 at 5:59 pm

Way to go Don,

Here's one more time when you're "Pro-Foreign-Business" and "Anti-US-Business". Is this some sort of personality flaw that "enables" you to see all sorts of "greatness" in foreign lands and decide they're preferable to anything in the US?

I can't imagine having you teach this dreck to young minds who just *might* believe that once all steel manufacturing is gone in the US, we can just *snap* our fingers and make it magically reappear. Of course, in EconLand anything's possible….reality is just a nasty inconvenience.

Instead of arguing AGAINST US industry, why don't you instead argue FOR flat, fair and even trading regimes? If a chinese or korean foundry can beat a US foundry, so be it. If the chinese government is subsidizing that foundry then it doesn't deserve free and open access to the US market.

Why do you perceive it's "better" to hobble ALL US industry rather than insist on a level competitive field? Again, it's not your job on the line, so it's OK, right?

Bruce Hall October 30, 2006 at 6:10 pm

By the way, this is more the reality of what has been happening in the U.S.

http://www.zwire.com/site/news.cfm?newsid=14670243&BRD=2212&PAG=461&dept_id=465812&rfi=6

Note the chronology of market loss, layoffs, bankruptcy, multiple sales… and continuing problems.

There is nothing to say that steel can't go the way of flat panel televisions… a "high tech" enterprise.

Caliban Darklock October 30, 2006 at 6:17 pm

> Why do you perceive it's "better"
> to hobble ALL US industry rather
> than insist on a level competitive
> field?

The field isn't level. We're already hobbling foreign industry so the American steel industry can "compete". I would argue that if the American steel industry could compete, we wouldn't need to hobble foreign industry. The steel industry, of course, would rather not work so hard.

Swimmy October 30, 2006 at 6:52 pm

faultolerant:

Your ideology is that we should make a select few of the relatively rich slightly better off by making the relatively poor of the world much worse off. Why not argue for "flat, fair trading regimes"?

Swimmy October 30, 2006 at 6:57 pm

Apologies, I posted before I was finished.

Why not argue for "fair" trade? Because all humans are equal, despite national boundaries. Because "creative destruction" is the principle which has made and will continue to make free economies the most prosperous on earth. Because the rents destroyed in deadweight loss are enormous, and the transitional gains traps regulation creates are further destructive and, worse, unseen. Because the price of protectionism is freedom, sacrificed to little more than political action groups vying for your dollar.

Geoffrey Brand October 30, 2006 at 8:37 pm

"So for as long as the subsidies continue, we enjoy steel on the cheap. And if and when the subsidies stop, the excess coke ovens, blast furnaces, and other steel-making equipment don't dissolve into thin air. They'll be around to ensure that steel is supplied competitively."

My understanding is that Don was refering to the excess foreign steel-making capacity..not idle plants in the U.S. or elsewhere…

Adam October 30, 2006 at 8:40 pm

There's no difference between a foreign government subsidizing a product I purchase (or an input for a product I purchase) and that same government mailing me a cheque. Either way, they're idiots and I'll take it.

Randy October 30, 2006 at 8:59 pm

The argument for protectionism can be easily reduced to the absurd. If the steel industry, or any industry, has a "right" to establish its own terms for doing business, then so does everyone else.

If the American steel industry is entitled to protection from the American consumer, then the American consumer is equally entitled to protection from the American steel industry.

If we are to pass laws granting a monopoly to the American steel industry, then certainly we must also pass laws to restrict the prices the industry is allowed to charge to the American consumer, and the products which they are allowed/required to produce.

And as the industry and products must be controlled, so too must we control the labor force. We cannot allow labor demands to upset the mechanism by which steel products are produced and distributed at a price which is fair to all.

So the alternative to free trade is nationalization – of industry and of labor. Perhaps this isn't actually a reduction to the absurd. Just a reduction to the clearly undesireable.

Henri Hein October 30, 2006 at 9:43 pm

Adam: Right on.

Henri Hein October 30, 2006 at 10:10 pm

Bruce:

You underestimate the ability of markets to adjust. Private enterprise generally doesn't fail because materials are not available. In fact, this is so unheard off I'm not even sure what historical scenario you would compare your scare story with.

"the original problems come right back"

But there were no original problems. You are concerned that Chinese steel makers will take over the US steel market by flooding it with cheap steel. If they do, and then raise prices afterwards, and the US economy responds in a way that makes them lower prices again, we are back to cheap steel. Surely you don't think that cheap steel itself is a problem?

Predatory pricing has never worked in the domestic economy. What makes you think it could work across borders?

"You might want to look a gift horse in the mouth; it may have hoof and mouth disease or worse."

The old saying goes that you should *not* look a gift horse in the mouth. Getting rid of it is easy. Getting a free horse is a lot harder. (Rather, a horse somebody else paid for).

Steve October 30, 2006 at 10:12 pm

Bruce Hall, in the very fist comment, presents the doomsday scenario of foreign governments dumping their cheap steel into the US markets… INDEFINITELY!!! This potential catastrophe needs to be averted. In retaliation, I suggest we flood China with cheap, US government-subsidized food. And once they stop producing their own food, in order to prevent them from starting again, we'll keep doing it. The suckers won't know what hit 'em.

Henri Hein October 30, 2006 at 10:16 pm

"why don't you instead argue FOR flat, fair and even trading regimes"

Do you consider the special tariff on steel flat, fair and even? If so, please explain. If not, then I don't see where you differ.

"it's not your job on the line, so it's OK, right?"

Speak for yourself. I can't speak for Prof. Boudreaux, but I have lost my position 3 times the last few years, at least partially due to foreign competition. So why do I still favor it? Because in the long run, I know that free trade and immigration makes me better off by providing a larger, stronger economy, with more opportunities and cheaper goods. I would much rather live in such a place than a controlled and stagnant market.

Jonny Econ October 30, 2006 at 10:39 pm

I picked up a ton of steel rebar two weeks ago. Foreign steel = $600 per ton. American made steel = $850 per ton. Steel made in Turkey reinforces concrete just as well as any.

cpurick October 30, 2006 at 10:45 pm

"My understanding is that Don was refering to the excess foreign steel-making capacity..not idle plants in the U.S. or elsewhere…"

That was exactly how I read it too.

Proof that Bruce Hall, not even smart enough to read Dr. Boudreaux's original post, obviously has no business trying to refute it.

kebko October 30, 2006 at 11:44 pm

I have heard complaints of US ag subsidies & aid to Africa because flooding African countries with cheap grain destroys the local agriculture economies.

I'd like to hear comments here on that. Is US ag policy & aid bad for African economies or are they better off because of the cheap food.

The idea that our policies were bad for Africa made sense to me, but I also agree with what has been written here – but these seem to be contradictory positions.

Kent Gatewood October 31, 2006 at 12:34 am

Would Dr. B's position require the Defense Dept to buy from China?

Do the immigrant fire bombers in France make the French Stronger?

colson October 31, 2006 at 12:53 am

faultolerant – you miss the mark entirely. The argument isn't pro/anti US/foreign, it is pro competition period. It has very little to do with whether it is a domestic or foreign business because the end result is what we really want: cheap steel.

Stop and look at the results of the 1980's campaign to "Buy American" and other silly notions. They failed and will continue to fail. As Russel Roberts has pointed out: What we say we "want" and what we really "want" are two different things. We inherently do not want protectionism when it comes time to spend our own money.

Try applying this "big vision" of industry for a more focused vision of the full effect of what you advocate. If you put your money where your mouth is, you'll be both poor and speechless.

Henri Hein October 31, 2006 at 1:52 am

"these seem to be contradictory positions"

Not so.

Free trade is good. It reduces the cost of goods and materials and allows economies to specialize in what they are best at.

Subsidies are bad. It encourages ineffecient activities and often distributes capital from the middle class to the rich.

However, just because something is subsidized is not a reason not to import it. We should freely import Canadian lumber and Asian steel; if Asian governments financially support their steel, it makes no difference from a US perspective. The decision to import something should be based on quality and price, which again is best decided by individual decision makers in the private market.

Agricultural subsidies make no sense, even if they didn't hurt poor economies. That they do is just one more argument against them. Not only would stopping the subsidies probably help third-world farmers, but opening up for importing their food would help them further by providing a hungry market.

Did I understand your question correctly?

Lafayette October 31, 2006 at 5:03 am

IBM-Europe
Siège social Tour Descartes
2 av Gambetta
92066 PARIS LA DEFENSE CEDEX
Att: Service Personnel

BH: "There are costs associated with keeping massive facilities maintained while unproductive. There is expertise lost as jobs disappear and skilled people disperse to new locations or try to start new careers."

And, so, pray tell, how is that different from any industry? The fact that there is a large cost in shutting and reopening steel furnaces is true admittedly, meaning that American will have to do what Europeans did in exactly the same circumstances 30 years ago. They built smaller plants and specialized in particular steels. These plants are still to be seen today … but, yes, not operating at their former capacities and employing fewer people.

America, due to its market size, has always benefitted from economies of scale in terms of production. That is simply no longer possible generally, given the facts of globalization in certain "aging technologies". This problem will raise its ugly head again and again. (Remember Ross Perot's warning of a "great sucking sound" when NAFTA was created? What happened? The comparatively few jobs that went to Mexico have long since left for China.)

All industrial sectors consolidate driven by market efficiencies and the rules of free trade must be respected no matter what the consequence to employment may mean. Otherwise, America becomes ridden by the "European disease" whereby every sector of economic activity seeks state protection in order to "save jobs" and such protection simply leads to prejudicial national pricing.

Steel making has had its day in the US. Time to move on along with the paradigm shift. Where to? Now, THAT is a question that merits our intellectual energies … not justifying misguided protection of aging national markets from the winds of globalization.

However, bending to "globalization" as some irresistible force is not on, either. It is defeatist. There are ways to compete to retain manufacturing in the US, or Europe, but they are not easy and require substantial investments in productivity equipment and skills.

The US should consider itself lucky. At least Uncle Sam doesn't have enormous social charges that, regardless of productivity improvements, tend to make manufacturing costs still far too high. German manufacturing total wage costs are almost double that of the US …

Mcwop October 31, 2006 at 8:26 am

Didn't Bush impose Steel tariffs not to long ago? Did these tariffs not fail miserably?

Bill October 31, 2006 at 8:58 am

Whenever someone starts talking about "fair" anything, I guard my wallet. "Fair" has pretty much become a euphemism for "a price different from the market price."

bbartlog October 31, 2006 at 9:06 am

The only good defense of trade restrictions I can think of relates to game theory. I country A's leadership is restricting our imports to their country for some reason, but wants to export to our couuntry without restriction, we are in the short term better off accepting the situation than we would be by imposing our own restrictions on their exports. However, the possibility still exists that we can achieve an even better state by forcing them to abandon their own trade restrictions, and if the only threat we have is our own restrictions on their exports, we may end up being forced to use them just to maintain the credibility of our threat.
Mind you, I don't think this sort of thinking actually guides our trade decisions, but it is a theoretical case for protectionism when dealing with foreign governments who don't see the benefit.

Also, I think you can make a case for a tariff on the import of positional goods. But steel doesn't qualify.

Kent Gatewood October 31, 2006 at 9:17 am

Are government payments to GMU a subsidy?

Swimmy October 31, 2006 at 9:32 am

"Didn't Bush impose Steel tariffs not to long ago? Did these tariffs not fail miserably?"

Clearly they failed because Bush is evil incarnate, not because steel tariffs are a bad idea. Don't you know anything about political science?

Bruce Hall October 31, 2006 at 10:05 am

Now that you've all agreed that building up the Chinese steel industry so that they can supply cheap products through excess capacity subsidized by the Chinese government, I'd like to point out one minor problem:

Once capacity exists, the term "excess" can only be applied to the totatality, not to the source. Consequently, all of American steel capacity can be deemed "excess" on a global perspective. Therefore, there is no reasonable expectation that the American portion of the "excess" capacity will not be the portion to be permanently idled in the long run.

That said, it is just one industry, one industry, one industry, one industry, one industry, one industry, one industry… oops the scenario got stuck for a bit there.

faultolerant October 31, 2006 at 10:28 am

Amazing. So much blather over whether or not we should engage in fair, free trade.

I was very much under the impression that this "august" body of "intellectuals" was in favor of competition. Either a player in an industry competes favorably or it perishes. I'm all for that. I certainly don't want to erect trade barriers simply to permit an inefficient industry to exist in the US. That was never my argument – although it seems that many responses make that presumption, which demonstrates an incredibly shallow level of comprehension.

I DID say – and will continue to say – that when the chinese government wants to subsidize their nation's products, to the detriment of US industry, it's an unlevel, unfair perspective.

I'm further amazed – actually not amazed, call it disappointed (and that's expected with this crowd) – that each of you in this room is more than happy to destroy local industry in favor of…..well, I'm not sure what you're in favor of because there's an automatic "America=Bad" bias.

I'll address comments by Henri Hein:

"Do you consider the special tariff on steel flat, fair and even? If so, please explain. If not, then I don't see where you differ."

Yes – if it offsets the subsidy of steel by the chinese government. No – if it's being executed in a market where no foreign subsidies exist. I'm not ever going to argue that we should permit the chinese government to kill US industry.

""it's not your job on the line, so it's OK, right?"

Speak for yourself. I can't speak for Prof. Boudreaux, but I have lost my position 3 times the last few years, at least partially due to foreign competition. So why do I still favor it? Because in the long run, I know that free trade and immigration makes me better off by providing a larger, stronger economy, with more opportunities and cheaper goods. I would much rather live in such a place than a controlled and stagnant market."

You presume that markets are binary: free or stagnant. That's a vast oversimplification and you well know it. Your metaphor is seriously lacking. Every market has gray areas and your insistance that either you have 100% "free trade" or "stagnancy" is intellectually bankrupt.

I, too, deal with international competition on a regular basis. I keep my skills updated through continuous education and have never lost a position because of cheaper market entrants. I also deal with chinese and indian offshore/outsource groups and can state, firsthand, that they're largely useful for only the most menial tasks – and that's even suspect sometimes.

Bill:

"Whenever someone starts talking about "fair" anything, I guard my wallet. "Fair" has pretty much become a euphemism for "a price different from the market price.""

So, you prefer unfair trade? If you're in the advantageous position, wonderful, but when you're on the bottom it's not so much fun.

Swimmy:

"Why not argue for "fair" trade? Because all humans are equal, despite national boundaries."

That's egoistic claptrap. All humans are NOT equal and that's demonstrably true. Are you an equivalent replacement for the fellow next to you? If not, then you're not equal. If you're saying that chinese are the equal of Americans – I say: So What. I'm not advocating for the chinese. If every single one of the 1.3 billion chinese on the planet died tomorrow, I'd have not a single concern over it.

Adam:

"There's no difference between a foreign government subsidizing a product I purchase (or an input for a product I purchase) and that same government mailing me a cheque. Either way, they're idiots and I'll take it."

Yes there are differences. One of them is that those industries are no longer present in the US. Shipbuilding: Gone. Steel: Nearly gone. Auto Manufacturing: Very sick. Airline production: Lots of parts made in other countries. So, you get your cheque and lots of folks get to be unemployed. You're one hell of an advocate for business, aren't you? Oh, I forgot, you got more cheap stuff so that makes it OK.

Randy:

"The argument for protectionism can be easily reduced to the absurd. If the steel industry, or any industry, has a "right" to establish its own terms for doing business, then so does everyone else. "

So I guess that you would argue that it's the "right" of foreign governments to decimate US manufacturing? That falls directly in line with your reasoning.

Colson:

"faultolerant – you miss the mark entirely. The argument isn't pro/anti US/foreign, it is pro competition period. It has very little to do with whether it is a domestic or foreign business because the end result is what we really want: cheap steel."

So, your argument, then, is that having no manufacturing capability in the US is the final, desirable end point. Right?

"Stop and look at the results of the 1980's campaign to "Buy American" and other silly notions. They failed and will continue to fail."

I buy American wherever and whenever I can. And YES, I do check labels. That's my choice, isn't it? Of course, according to you I don't have that right – because, as usual, cheap chinese crap is always preferable to the econ/lib mindset.

"Try applying this "big vision" of industry for a more focused vision of the full effect of what you advocate. If you put your money where your mouth is, you'll be both poor and speechless."

"Big Vision" of industry: Meaning, no manufacturing in the US. Thanks, that's not a vision I'd consider a positive outcome. Oh, and I DO put my money where my mouth is….and I have free speech and a very nice financial position. Seems like your argument fails on both counts.

Kent:

"Are government payments to GMU a subsidy?"

Yep – and a vastly wasteful one. Instead I say we pay the University of Shanghai or New Delhi….because, after all, those chinese and indians are poor and they "deserve" our consideration. Those "nasty Americans" don't.

Randy October 31, 2006 at 10:39 am

faultolerant,

Re; "So I guess that you would argue that it's the "right" of foreign governments to decimate US manufacturing?"

Yes. More precisely, it is the right of US consumers to transact with whoever offers them the best deal. If this results in the decimation of US manufacturing, then so be it. Sorry, but I see nothing sacred about U.S. manufacturing. Its true that I don't know anyone in China. But then, I don't know anyone in Pittsburgh or Detroit either.

Bruce Hall October 31, 2006 at 10:47 am

Randy,

I think you just struck the heart of the differences:

From your point of view there are NO NATIONAL INTERESTS, only economic decisions that favor you.

From my point of view, there is a national interest in ensuring a competitive system that is not RIGGED by one of the players to irrevocably harm the other players… especially when those action, on a global scale, weaken the ability of U.S. industries (and suppliers, and associated service industries, and associated professionals, and associated communities) to remain economically viable.

I do not believe that "I got mine" is a viable economic strategy for the members of any group, population, nation, when the rest of the group, population, nation is in jeopardy.

faultolerant October 31, 2006 at 10:51 am

So, Randy, then I suppose you're a proponent of mass unemployment and being totally at the mercy of the chinese government? They're well known for their philanthropy and friendliness to dissent, competition and free market ideals.

Again, just as long as you got your cheap chines crap you're happy. There's a life-philosophy for you!

Bruce, in Randy's world it's not "I got mine" it's more like "I got my cheap crap, now fob off". More's the pity.

anon October 31, 2006 at 11:25 am

faultolerant actually said:

"If every single one of the 1.3 billion chinese on the planet died tomorrow, I'd have not a single concern over it."

I just wanted to point that out for anyone who missed it.

Bruce Hall October 31, 2006 at 11:30 am

Randy,

So far, the only player guilty of "protectionism" is China which government has been actively working to expand many of its industries through subsidies and other favorable operating conditions.

And that really seems to be working for them. The strategy is relatively simple: create an artificial imbalance that will temporarily benefit some portion of a competitor's industries while gradually eliminating others. Once competition in one sector has been crippled, target another. That way, while the targeted industry is being crippled, the other industries remain silent because they are temporarily benefitted.

It's classic divide and conquer.

But don't worry… you got yours… for now.

Randy October 31, 2006 at 11:35 am

Faultolerant,

Re; "…then I suppose you're a proponent of mass unemployment and being totally at the mercy of the chinese government?"

Setting aside the hyperbole… Yes, I am in favor of competition, even foreign competition. Because I don't see the value of freezing the world in time at a point where the haves keep what they have forever, and the have nots are just stuck forever. I think that to keep what you have you should have to keep earning it. I think that competition is the motivator that will drive us to a better world. I realize that it is human nature to want to stop competing once a goal is achieved. But if we really want what is best for "society as a whole", such stagnation cannot be allowed. Interesting, don't you think, that individual motivation corresponds so precisely with societal motivation?

Randy October 31, 2006 at 12:19 pm

Bruce,

Re; "I do not believe that "I got mine" is a viable economic strategy for the members of any group, population, nation, when the rest of the group, population, nation is in jeopardy."

Well, we certainly have philosophical differences as to the value of the "group". The only "groups" I have voluntarily joined are my family, friends, and the people I do business with. Lots of people want to make me an involuntary member of their groups (e.g., the US steel industry, proponents of social welfare schemes, etc.). There's not much I can do about most of them as these so called moralists tend to use government to force my compliance. But my mind is free. They can't force me to like it – or to recite their creed.

And as for the nation being in jeapordy – I see protectionism as a far greater threat than foreign competition.

Bruce Hall October 31, 2006 at 12:32 pm

Randy,

So far, the only player guilty of "protectionism" is China which government has been actively working to expand many of its industries through subsidies and other favorable operating conditions.

And that really seems to be working for them. The strategy is relatively simple: create an artificial imbalance that will temporarily benefit some portion of a competitor's industries while gradually eliminating others. Once competition in one sector has been crippled, target another. That way, while the targeted industry is being crippled, the other industries remain silent because they are temporarily benefitted.

It's classic divide and conquer.

But don't worry… you got yours… for now.

Bruce Hall October 31, 2006 at 12:36 pm

One last comment… not mine:
Richard E. Wiley, former Chairman of the Federal Communications Commission, Bert W. Rein, former Deputy Assistant Secretary of State for Economic and Business Affairs, Fred F. Fielding, former Counsel to the President of the United States

http://www.wrf.com/publication.cfm?pf=1&publication_id=12576

A pretty good argument that subsidizing = protectionism.

Scott October 31, 2006 at 12:54 pm

Bruce,

Thanks for the link. Here's what I got out of it.

"In 2000, China produced 126 million tons of steel, about 20 million tons more than the next largest producer, Japan. In 2005, China made 348 million tons of steel, an increase of 175% in only five years."

So, let's assume your doomsday scenario where subsidized Chinese steel destroys the U.S. steel industry. After that time they take advantage of thier "monopoly" and start jacking up prices. At worst, it should take the U.S. five years to ramp up production assuming they are as efficient as Chinese manufacturers. Of course, then the Chinese would lower their prices again and so we end up back where we are with lower steel prices.

Also, I don't think you have to do much convincing here that subsidizing = protectionism, but where we differ is that if another country is foolish enough to do it, we shouldn't be so eager to follow them.

Bruce Hall October 31, 2006 at 1:07 pm

Scott, only one flaw in your argument: you presume that there will be a steel industry in the U.S. capable of a "ramp up". History has shown with other industries that it simply doesn't happen.

There may be a very small niche where a very large industry once existed, but China will have acheived its objective through subsidies = protectionism.

Randy October 31, 2006 at 1:14 pm

Bruce,

That's an interesting point about history. Can you show me an example from history where an industry in one nation was out competed by that of another nation and put out of business, but was then required to be brought back? I honestly can't think of a time when that has happened. Perhaps because the trade relations were on the whole beneficial to both nations, and therefore there has been no reason to bring the old industries back.

Bruce Hall October 31, 2006 at 1:33 pm

Randy,

Please actually read what I wrote which was the opposite of what you assumed.

The Chinese are not "outcompeting", they are using tactics that only a central government could.

"Required to come back"??? My point was that an industry in the U.S. (or other nations where they are not state run/supported) would not be capable of coming back after being ruined by competition that is not market based.

R E A D C A R E F U L L Y

Randy October 31, 2006 at 2:04 pm

Bruce,

As I understand it, your point is that we shouldn't take advantage of cheap Chinese steel to the detriment of our own industry because we might someday have to bring back our own industry. And my question is why should we believe that will ever be necessary? I can't think of a single time when it has ever been necessary to revive such an industry. And if the example of history shows that there is a very low probability that we would ever need to revive such an industry, then why should we be concerned that doing so might be difficult and/or costly?

Bruce Hall October 31, 2006 at 2:12 pm

Randy,

Obviously, you are free to feel that there really is a "free market" out there and we all benefit from it.

As I offered up earlier, this was well written and argued: http://www.wrf.com/publication.cfm?pf=1&publication_id=12576

Concluding Thoughts

China is a major economic power. Under true market conditions, China would undoubtedly have a large and diverse steel industry. It would not have a steel industry that has grown to account for a staggering 31% of total world steel production. The Chinese steel industry in its current form is the creation of the Chinese government. It has benefited from massive direct and indirect subsidies, many of which violate the WTO’s Subsidies Agreement, China’s obligations under its WTO accession agreement, or both. The Chinese government has adopted an official policy that requires it to continue to provide the steel industry with massive subsidies.

The consequences of these actions have been profound. The growth of the Chinese steel industry has been at the expense of its international competitors. The Chinese steel industry’s expansion is simply one component of an overall strategy that has resulted in the displacement of production in dozens of industries from the United States to China, at the cost of hundreds of thousands, if not millions, of American jobs. Because the Chinese steel industry is a major emitter of pollutants and greenhouse gases, the long-term impacts may be even more severe. The economic stability and security of the United States demand that the Chinese government end its policy of subsidization of the Chinese steel industry.

Noah Yetter October 31, 2006 at 2:12 pm

"My point was that an industry in the U.S. (or other nations where they are not state run/supported) would not be capable of coming back after being ruined by competition that is not market based."

Your point is rubbish.

There is no economically meaningful way in which competition with subsidized foreign steel is different from competition with unsubsidized foreign steel. If the US steel industry disappears due to this foreign competition, and then market conditions change to favor its return, it will or will not be able to return regardless of whether that foreign competition was subsidized or not.

But that's irrelevant, because as Randy pointed out there are no cases of your doomsday scenario in history. Zero. Moreover the relevant theory shows fairly conclusively that we should expect that number to remain zero forever.

Scott October 31, 2006 at 2:17 pm

Bruce,

The problem with determining what is and isn't government intervention is a matter of perspective. Sure, Chinese governments are subsidizing steel manufacturing but doesn't that mean other Chinese industries, for example widget manufacturers, are paying higher taxes than they otherwise would be? Couldn't Chinese widget manufacturers argue that U.S. widget manufacturers have an unfair advantage because they don't have to subsidize U.S. steel? Pretty soon every industry is arguing that it faces "unnatural" competition and therefore warrants some kind of protection and then all borders are closed to imports (which I suspect would be just fine by you).

Bruce Hall October 31, 2006 at 2:23 pm

Scott,

Just read the article.

I have no problem buying imported items that are from areas and industries that do not use the Chinese tactics as outlined therein.

Henri Hein October 31, 2006 at 2:41 pm

"I'm not sure what you're in favor of because there's an automatic "America=Bad" bias"

For somebody accusing us of a shallow level of comprehension, this sentence displays an astounding misreading of the free trade position.

"if it offsets the subsidy of steel by the chinese government"

At least two problems: 1. The tariff applies to all steel, not just Chinese steel. 2. It was never satisfactorily explained why cheap steel is so bad for the overall US economy.

"You presume that markets are binary: free or stagnant"

I presume no such thing, and since you well know that I well know it, why even bring it up? Of course it's a sliding scale, but every tax, tariff, subsidy and regulation brings us towards a stagnant market.

Henri Hein October 31, 2006 at 2:43 pm

"subsidies = protectionism"

Wrong, subsidies is mercantilism.

Bruce Hall October 31, 2006 at 3:01 pm

Noah,

Instead of hurling insults back, I'll offer you a chance to educate yourself:

- from the State Department http://usinfo.state.gov/ei/Archive/2005/Jan/12-31762.html

- from the Heritage Foundation
http://www.heritage.org/Research/AsiaandthePacific/hl948.cfm

- from the U.S. Patent Office
http://www.uspto.gov/web/offices/com/speeches/2004mar23.htm

Okay, the list goes on and on.

But it will not do any good to provide more since you have already concluded that the Chinese brand of competition is no different from any other and no real harm is being done here.

Somehow you manage to conveniently ignore their actions which include subsidizing industries, intellectual property theft, and import restrictions to their own markets that hinder our manufacturers.

I know, everthing I've quoted here is "rubbish".

Scott October 31, 2006 at 3:07 pm

Quick question for you Bruce. If China was giving away steel for free, would you demand that they charge something for it?

faultolerant October 31, 2006 at 3:34 pm

Henri,

You said:

"For somebody accusing us of a shallow level of comprehension, this sentence displays an astounding misreading of the free trade position."

OK, PROVE IT. So far not one single word you've said contradicts my perspective. In your world it's always the single-minded pursuit of cheaper crap. Full stop.

The atomistic perspective seems to be the only one you and Randy can espouse. While it's certainly your right, that doesn't make you right.

So, I'll say it again: PROVE IT.

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