A government policy that hurts manufacturing industries, damages our international competitiveness and costs three jobs for every one it saves makes little sense. But that's exactly what we will get if the American steel industry has its way.
At issue are the quotas against imported steel that the industry wants to extend for another five years. The question is whether special treatment for one industry at the expense of many others is in the national interest. The answer should be a categorical no.Today, our steel industry is competitive and healthy. Indeed, steel can no longer claim it is an injured industry. Cost cutting, robust demand and the declining dollar have made it one of the world's most efficient producers. Profits are high - roughly $2.2 billion in 1988 - and mills are running at full capacity.
But the quotas have damaged many other sectors of the economy, costing jobs and threatening our economic future.
There is not always enough domestic steel to meet the growing demand of our revived manufacturing industries. Unlike the producers of other basic materials, Big Steel is protected from international competition by the import quotas. This permits the industry to exploit strong demand by raising prices and extending delivery time.
Steel-using manufacturers - makers of appliances, machinery, metal products and transportation equipment - are faced with higher costs, shortages and delays, and thus lost sales at home and abroad. Labor suffers when these companies lose business. Consumers lose when higher raw material costs translate into higher prices on finished goods.
These harmful effects come at a time when American manufacturers are rebuilding after the battering of the early 1980s. Thanks to a lower dollar, these companies are beginning to reclaim export markets and redress our trade imbalance.
But the recent record of trade figures shows how precarious this recovery is. For years, American manufacturers lost out because steel prices in this country were far higher than elsewhere - 25 percent higher than in Japan and 20 percent higher than in West Germany from 1969 to 1985.
Considering that steel-using manufacturers account for a large share of American exports, non-competitive steel prices could again force our firms out of world markets, jeopardizing our manufacturing revival and aggravating our trade woes.
Average steel prices have increased 15 percent since 1986. But that figure, though high, masks the true impact of the quotas. Big Steel's largest users, such as the automobile industry, have long-term contracts that protect them from major price hikes and ensure reliable delivery.
Other companies, however, are at the mercy of the steel industry. Prices for them have gone up as much as 40 percent, and shortages disrupt their production schedules. As soaring steel costs eat away at their profits, their ability to modernize and export is stifled.
Some steel-using companies resort to desperate measures. One bought finished steel parts overseas that could have been made more cheaply at home. Some apply for quota exemptions, even knowing that the quota exemption will be denied if a domestic steelmaker offers to supply the steel, no matter how high the price.
It would make sense to eliminate the quotas and safeguard an American industrial resurgence that would also reduce our trade deficit. The last thing we need is a dose of economic medicine that gives one industry a short-term boost while making many others sick for years to come.
(Paula Stern, the head of a trade advisory firm, was a member of the International Trade Commission from 1978 to 1987.)