There was a time, not so far back, when the United States steel industry was the world leader. The molten liquid that cascaded like glowing rivers from the nation's open-hearth furnaces became the basic metal of which American industry was built. Unfortunately, the natural growth of vigorous competition from overseas producers, many of them in developing countries, high wages and prices in the US, outmoded plants, and a sometimes stodgy management all combined to end the industry's dominance.
Today American mills account for about 14 percent of world production, compared to 57 percent in 1947.
The troubling question now is whether the American industry is in effect ''writing off'' its own future commitment to steel. Not that the industry would consider going out of business altogether. But it may be tempted to scrap the battle, as it were, and instead diversify as quickly as possible into non-steel-related enterprises. A recent Business Week headline, for example, asked, ''Is Big Steel abandoning steel?''
There is nothing wrong with diversification. That is a common practice in the business world. Diversification might even shore up the steel industry and reduce the need for government subsidization. But if the industry's intention is to jettison steel production, it is making a mistake that should be resisted by labor unions, the Reagan administration, and the American people.
It is not a matter of nostalgia. Rather it is a matter of national security and of a sound industrial base for both defense and civilian needs. There are many friendly nations from which the US could acquire steel in an emergency. Nevertheless, prudence suggests retention of a vigorous domestic industry, whatever its world ranking.
A number of steel producers, such as National Steel and Armco Inc., are now dashing pell-mell down the diversification route. Armco has even dropped the word ''steel'' from its corporate title. Jones & Laughlin Steel is now part of conglomerate LTV. But the most spectacular move remains the near-completed effort by industry giant US Steel Corporation to acquire Marathon Oil, the nation's 17th largest oil firm.
Such a merger would presumably provide US Steel with a long-run cash flow and thus add to its capital improvement resources. But the move would also sharply accelerate that part of US Steel's business ledger made up of non-steel sales.
Ironically, all the recent moves toward diversification in the steel industry come at a time when some solid gains are finally being registered in terms of modernization and productivity. The industry in the past few months has committed close to $6 billion to new modernization programs, thanks largely to enactment of the Reagan administration's tax program as well as easing of regulatory and environmental laws. Productivity gains are being recorded at some firms, in part because of innovative labor and management programs. The industry is also finding that it can turn a profit despite operating at a mere 59 percent of capacity, no mean achievement.
It is to be hoped that the industry will aggressively continue its modernization programs - and abide by the commitment made to the administration and to labor unions to boost productivity. Diversification, as noted, may prove a blessing. But if the industry decides to opt out of steel, Congress and the administration should seriously consider taking away its hard-won tax and depreciation advantages.
One final consideration. Obviously European producers should not be allowed to engage in dumping of steel products in the US. But the industry should be required to prove that such a practice is now occurring before receiving import relief. The high-level administration trade delegation flying to Brussels this weekend to meet with European trade officials might even wrest some voluntary restraints on imports. But it must also be recognized that the US industry's problems can hardly be blamed solely on cheap imports when its hourly wage and benefit packages run as much as 80 percent higher than the average in United States manufacturing.
Given technological ingenuity, streamlined corporate practices, lower labor and executive costs, better labor-management relations, and plant modernization, there is no reason why the US steel industry cannot long ensure its profitability and its vital place in the American economy.