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Bolstering US steel: tariffs are not enough

July 7, 1983



President Reagan's decision to raise tariffs and set import quotas on a number of foreign-made specialty steel products could well be reflected in higher prices for a range of goods and services. Specialty steel, after all, is used in catalytic converters in cars, garden tools, even in aircraft engines. But, more significantly, Mr. Reagan's action increases pressure on US trade negotiators to work out orderly marketing agreements with America's steel-producing trading partners.

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The specialty steel decision, which was not unexpected, was a compromise action bound to please few persons, firms, or nations involved. Common Market steel-producing nations see the higher tariffs and new quotas as violating the spirit, if not the letter, of the recent Williamsburg economic summit, where participants agreed to work for a reduction in protectionist measures. US steel unions believe the new restraints will be ineffective, since overseas producers will merely increase their subsidies for specialty steel to overcome costs of the new tariffs. Among US speciality steel producers, meanwhile, there is a more ambivalent attitude, with several producers saying that at the very least the new tariffs and quotas (imposed over a four-year period) give them time to put their financial operations in order, cut unnecessary costs, modernize their facilities, and boost output and sales.

That, of course, is the absolute minimum requirement for US producers. To refrain from taking such steps will merely result in more of the specialty steel market being gobbled up by overseas suppliers than the 15 percent to 18 percent of the market now represented by imports. Fortunately, the US firms still have time for making the needed changes since imports constitute a smaller share of the specialty steel market than is the case for the overall US steel market, which is about 22 percent foreign supplied.

Should the hike in tariffs and new quotas be taken as a lurch toward protectionism in the US, as the Europeans allege? If so, that would be most regrettable. Given the vital importance of world commerce, trading nations should be moving away from, not embracing, protectionism.

Actually, a strong case can be made that Mr. Reagan's action represents a cautious response that does give a short ''breathing'' period to an industry faced with foreign competitors who are lavishly subsidized by their own governments. An agreement was reached last year with European producers of carbon steel under which carbon steel exports to the US were reduced to an average of 5.44 percent of the American market. The US and its trading parters now need to work out a fair and mutually satisfactory agreement regarding specialty steel.