A Meltdown in US Steel Business

Faced with a sudden surge in imports, the American steel industry is shouting, like Chicken Little, "The sky is falling! The sky is falling!"

"Unfortunately, in this case it is," says steel-industry consultant Donald Barnett.

Steel imports in August hit 4.4 million tons, up 78 percent from August 1997. At that rate, steel importers will take half the domestic steel business in 1998.

Steel is coming in so fast, say experts, it is piling up unsold in parking lots in the port of New Orleans. Prices have tumbled to levels not seen for decades.

The crisis for US steelmakers came quickly. Only three months ago, steel-industry officials looked forward to another year of booming output. Now, they seem in near panic.

Pittsburgh steel executive Paul Wilhelm calls the situation an "economic mugging."

"If imports continue at this level, I could easily see half of the domestic industry go away," says Mr. Wilhelm, president of U.S. Steel Group, the nation's largest steelmaker.

Many of the 170,000 unionized, $35-an-hour jobs in the industry would disappear, Mr. Wilhelm says. So would some of almost 1 million jobs in related industries. "We are talking about very large numbers."

Steel output has already fallen 20 percent in recent months. One company, Acme Steel in Chicago, has declared bankruptcy. Two more steel companies Wilhelm didn't name are also in danger, he says.

The culprits are the huge currency devaluations and economic disruption in East Asia and Russia. They have sent a flood of steel exports to US shores as foreign steelmakers try to cover some of their high fixed costs by shipping their surplus production to foreign markets, including the US, where demand has also shrunk.

"It's a beggar-thy-neighbor policy," says Mr. Barnett of Great Falls, Va. "Everybody is trying to dump their problem."

Experts see a worldwide crisis in the steel industry.

In response, 12 US steel companies and two of its trade unions on Sept. 30 charged Russia, Japan, and Brazil with illegally dumping or subsidizing hot-rolled carbon-steel exports to the US. Their case was heard by the International Trade Commission last Wednesday.

The ITC is scheduled to give a preliminary finding by Nov. 16 of whether the US companies have been injured.

If the ITC finds damage, it could authorize dumping penalties and duties. These charges, however, would not be assessed until next September, when the ITC makes its final ruling.

In the meantime, imports would likely decline dramatically. Threatened dumping penalties could run as high as 200 percent of a product's price.

The US steel industry also plans to file cases covering other steel products and against other steel-exporting nations.

"Foreign firms will not get a fair trial," charges Kent Jones, an economist at Babson College, Wellesley, Mass., and a former government official dealing with steel trade issues. The "crazy" antidumping statutes, he notes, were written with the domestic steel industry in mind.

In addition to the legal action, the industry has moved to shape opinion among the public, in Congress, and in the Clinton administration.

"The only place this problem can be solved is in Washington," says Wilhelm.

Top steel executives have already met at the White House with Treasury Secretary Robert Rubin, Commerce Secretary William Daley, Trade Representative Charlene Barshefsky, and former chief of staff Erskine Bowles.

They would like to meet with President Clinton.

"We are not asking for new tariffs," says Wilhelm. "We want them to enforce the rules on their books."

Wilhelm talks of the US government negotiating with steel-exporting nations for reductions in their shipments.

The steel industry got several such "voluntary restraint agreements" against foreign competitors in the 1980s. Then, the industry was often criticized for trailing the Japanese in efficiency and quality.

Since then, officials say, the industry has spent $50 billion to modernize.

"We are a worldwide leader," claims the U.S. Steel executive. "We don't have to hang our heads to anybody."

"They have made a lot of improvements," Professor Jones concedes. But he still dislikes import restrictions and says the industry may need further "restructuring."

He sees some steel "commodity" output moving abroad where labor is cheaper while the domestic industry specializes in high-end products.

But to Wilhelm, US steel producers face an uneven playing field. "Nobody gets into Japan," he says. Western Europe deflects steel imports with trade deals.

"The only open market is us," he says.

The industry and United Steelworkers of America have launched a print advertising campaign charging that foreign steel is being dumped "at cutthroat prices."

The "Stand Up for Steel" coalition is an all-out effort to make the case for a crisis in steel. It includes rallies in some 50 congressional districts where steel production is important and pressure on state governors to support the steel industry.

Workers have even tried, unsuccessfully, to stop the unloading of steel at the nation's ports. In Washington, the House passed a nonbinding resolution against steel imports.

"We are in the middle of a trade war right now in steel," says Wilhelm. "And we are losing."

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