Free traders are celebrating this week's decision by America's International Trade Commission to block further protection of the US steel industry. The bipartisan ITC turned down requests to impose anti-dumping tariffs on imported cold-rolled steel.
Still, the ITC news is something of a sour victory for steel consuming businesses. This is so for two reasons. The first is that ITC decisions are retroactive. Had the ITC ruled for anti-dumping protection this week, any steel imports that took place since this spring, when a preliminary determination for anti-dumping duties was made, would have been subject to the new additional tariffs. This alone has dried up supply from abroad, hurting US steel-consuming businesses. Secondly, the news that they won't face anti-dumping tariffs from the ITC doesn't undo the pain the firms are already feeling from another set of tariffs, the infamous 'safeguard' tariffs on steel imports that were placed on the industry by the Bush administration earlier this year.
Lest readers dismiss this as so much free-market cant, we offer the case of Trilla Steel Drum, a three-generation family business that employs 67 Chicago workers. The firm is located on the city's Southside, not too far from Midway Airport. In other words in one of those vulnerable urban areas that lawmakers love to try to help through enterprise zones and other targeted programmes 'to save industry'.
Cold-rolled steel is the main material the Trilla uses in making its products. Also crucial to Trilla's business is that that steel be of high quality. This is because Trilla Drums are used as containers for hazardous materials. If the drums are to protect users from industrial accident and that most terrible of American poisons - litigation - they must meet the highest standards. As it happens, the cold-rolled steel that meets these standards tends to be made outside the US.
The Bush administration's spring steel protections, therefore, have amounted to the equivalent of an anti-employment, business-destroying move against Trilla Steel Drum. Since the imposition of the spring tariffs and the announcement that the ITC was considering slapping yet more tariffs of the industry, the steel that the firm needs has been harder to come by, says Lester Trilla. It has also been 54 per cent more expensive. This translates into an increase of about 20 percent in the cost of manufacturing each drum. What's more, the poorer quality of the US steel results in breakdowns and rejected drums, hurting Trilla Steel Drum's competitiveness in the field.
Somebody though does benefit from a Trilla's loss: non-US firms. Trilla customers have the option of sending their product overseas and having it poured into drums in other countries. This option is looking increasingly attractive as US tariffs drive US prices heavenward.
Recently, Mr Trilla travelled to Europe, dining there with customers in the hope of sustaining contracts. But just this week one of those customers informed him that it would be switching to plastic containers made outside the US in order to save money.
Non-US steel drum makers are also benefiting. As Mr Trilla pointed out to us in a phone call to us, you can currently buy a good steel drum in Singapore for about $9, compared with $27 in the States. Steel prices in Europe are $300 a metric ton, in Japan about $280. Compare that with the US, where a like amount runs for over $550, post-tariffs. So Mr Trilla is losing marketshare both to steel-using drummakers abroad and to other industries that make drums of other materials. 'Simply put: there's no need to buy a steel drum from me', he says.
Nor is Trilla the only Chicago firm to lose out by this change. Firms in the city that fill drums and transport them are also suffering; so are the firms that warehouse filled drums. Not great news for a city whose unemployment rate just hit 7 per cent.
What's so hard to quantify here, and yet so damaging, is the cost of uncertainty. While the ITC decision is a felicitous one, it has been close to a year in coming. During that year, many in the industry feared that the ITC would impose yet more protection. This in and of itself, naturally, damaged the business environment. If the ITC had ruled fast for free trade, as Mr Trilla says, 'the industry overall might never have been as sick as it has become'. Nor does it help matters that the ITC ruled on only five steel-exporting countries, leaving a dozen-odd more up in the air. Since duties are, as we say, retroactive, imports from those countries are still essentially dead in the water: firms like Trilla Steel Drum continue to have trouble finding the raw materials they need.
We convey all this detail only to show that there is a reality to the general allegation that eight US jobs are lost for every one job saved through steel protection. LTV in East Chicago, a steel firm that has sought federal support, may benefit a bit from protections. But in the long run, Trilla and the other steel-consumers in Chicagoland will lose out. The same story replicates itself all over the country. Where's the drum beat for free trade?
© Copyright 2002 Financial Times
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