Bush treads fine line on protecting US steel industry

US mills applaud his decision to look into surging imports, but critics warn against imposing sanctions.

The Laclede Steel Co. used to be a bustling place. Now, downsized and fresh out of bankruptcy, it looks like an industrial shell. Railroad tracks lead to unused buildings. The rust is visible everywhere except the rear of the compound where, like General Custer, workers and managers have retreated to make what could be their last stand.

By announcing an investigation into foreign steel imports - a move that could lead to sanctions - President Bush has offered a ray of hope to such gritty places. "It's definitely good news for us, because the imports are killing us," says Dallas Moore, vice president of Local 3643 of the United Steelworkers of America here in Alton.

But the president's aims may be larger than just helping the foundering industry. By initiating more sweeping action than former President Clinton, Mr. Bush is buffing his image as a moderate on trade, reaching out to Republican and Democratic legislators with steel companies in their backyards, and reflecting Americans' ambivalence about free trade. To critics, though, he is putting at risk his free-trade credentials with the rest of the world.

"It certainly sends a signal to the rest of the world not to take too seriously all those free-trade speeches," says Daniel Griswold of the trade-policy center at the Cato Institute, a libertarian think tank in Washington. "The United States wants other countries to open their markets, but we're going to close ours when the political pressures get too great."

At the heart of the debate is a three-year surge in steel imports. Last year, the US imported 37.8 million net tons of steel - the highest total since the '98 record. This year, imports have dropped to more normal levels. But the damage has been done.

The US industry has seen record bankruptcies. Prices of several key finished-steel products remain below the lows of 1998, according to the American Iron and Steel Institute, a Washington trade group. If prices don't pick up, more bankruptcies could follow, it warns.

"There are many companies in this country that need immediate relief," says Steve Blair of Laclede.

Laclede faces its own hurdles. Having emerged in January from more than two years of bankruptcy, the small steel producer finds its recovery complicated by the import surge, which has hurt its steel-bar business and its steel-pipe sales. The firm has filed a lawsuit about the imports. The biggest offenders, Mr. Blair says, are South Korea and China.

But the picture is not that simple. One reason foreign steel remains so cheap is that the US dollar stays stubbornly high against foreign currencies. Not all steelmakers are challenged to the same degree. Some of the most disadvantaged are large firm, which are losing markets to US mini-mills as well as foreign markets.

"They're dinosaurs," says Robert Lawson, an economist with the Buckeye Institute, a free-market think tank based in Columbus, Ohio. As difficult as it might be, Americans would be richer if they allowed uncompetitive steel mills to fail, he adds.

On the other hand, "something is going on, and it's not just the strength of the dollar," cautions Frank Giarratani of the industry studies center at the University of Pittsburgh. Some of the most competitive steelmakers, who pooh-poohed foreign competition a decade ago, are feeling the squeeze from imports this time, he adds.

In calling for the International Trade Commission to investigate steel imports, Bush is borrowing a play from another conservative GOP president, Ronald Reagan. Eight years of steel-import restrictions under Mr. Reagan allowed the industry to modernize and downsize.

If the ITC agrees with the dumping charges, it will give the industry time to consolidate and, perhaps, find a way to solve one of its most pressing problems: paying for the healthcare and retirement costs of the steelworkers. The Bush administration also seeks a global agreement that would address overcapacity.

The steelworkers union is pressing for a surcharge to be placed on every ton of steel - foreign or domestic - sold in the US. Leo Gerard, union president, says the fee would add $3.25 to the cost of a car and $2 to the cost of a refrigerator, while saving the benefits of 350,000 retirees. This proposal is part of legislation, co-sponsored by 218 Congressman, currently working its way through Congress.

The ITC has 120 days to determine whether foreign competitors have been dumping steel in the US at below-market prices and whether the domestic industry has suffered as a result. It has 60 more days to recommend a remedy, such as tariffs or import restraints. Bush then has 60 days to take action, which observers believe will lead to reduced steel imports and higher prices for consumers.

Trade observers aren't surprised a Republican president would initiate such action. "This boils down to ... old-fashioned special-interest politics," says Mr. Lawson.

In this way, politicians mirror Americans' own lukewarm support. In principle, they support free trade, says Steven Kull of the University of Maryland in College Park. But, "they are concerned about the consequences to American workers."

Staff writer Ron Scherer contributed to this report.

(c) Copyright 2001. The Christian Science Monitor

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