- The Washington Times - Tuesday, August 14, 2001

Since 1998, 19 domestic steel companies have entered into bankruptcy, including one about a week ago, while newspapers are awash with stories of industry layoffs. Imports, many of them illegally subsidized, have flooded U.S. markets in recent years, threatening further devastation to an already fragile industry. Returns on capital in the industry are so low that even profitable companies find it difficult to attract the necessary funding to compete in a dog-eat-dog market.
How did we get into this situation? What should we do about it? And, most importantly, why should we act to prevent the death of this industry?
Some argue that the industry's difficulties are their own fault. We hear claims and stories, but very few facts, that a combination of indifferent management and greedy unions lead to the decline through short-sightedness and a failure to invest in modern plants and equipment.
By any objective measure, this claim is false.
The domestic steel industry, after the shocks in the late 1970s and early 1980s, completely remade itself. Total steel industry employment fell from 570,500 in 1979 to 239,200 in just 15 years. Despite the loss of 331,300 jobs in that period, steel production fell only marginally. At the same time, more than $50 billion was invested in plant modernization. Not surprisingly, productivity soared. Twenty years ago, it took more than 10 man-hours to produce one ton of steel. Today, that same ton is produced in just over three man-hours, and some domestic producers can manufacture a ton of steel in less than one man-hour. This level of productivity meets or even exceeds that of all of our major competitors.
To find the cause of the steel industry's distress, we have to look beyond our shores. In my view, the current crises began with the crackup of the East Asian economies in 1998 and the surprise Russian debt default, which led to chaos and currency devaluations across the developing world. Faced with a collapse in domestic demand and a pressing need for capital, many of these nations chose to "export their way out of the crisis" by unloading or "dumping" millions of tons of steel at below-market prices in the United States.
The strategy worked. By the third quarter of 1998, foreign steel imports had surged to 40 percent of the domestic market annually. The impact on American producers was devastating. Unable to game the domestic market through currency devaluation or government subsidy, the outcome was inevitable. Thousands of workers were shown the door, while more and more companies were driven to the edge. That is where we aretoday.
Incredible as it may sound, some argue that foreign steel subsidies, and the damage it causes here, are actually good for the United States. If a foreign country wants to use its tax dollars to subsidize consumer consumption in the United States, the argument goes, so much the better. After all, it's just a transfer of foreign tax dollars to U.S. hands.
For a number of reasons, that argument is as simplistic as it is wrong.
First, subsidies distort the market in an unsustainable way and eventually something has to give. Unfortunately, it has become clear that our steel producers will go out of business long before some foreign government. Once competition is eliminated, the need for subsidy would stop, and foreign producers, now free of American competition, would be able to raise prices.
And with our industry gone, who will pay the retirement and health benefits for hundreds of thousands of steel workers? Unless we're counting on foreign aid from Russia and South Korea, you can be sure it will be our taxpayers picking up the tab. So much for saving money through foreign subsidies.
Furthermore, steel is a national security asset. In time of war, we simply cannot allow ourselves to be dependent on imports to keep our defense plants running.
What a relief, then, that the Bush administration decided to move forward with a Section 201 trade law-enforcement action to help the beleaguered steel industry. In contrast to the prior administration, which merely talked when action was required, it is clear that President Bush and Secretary of Commerce Don Evans recognize the need to insulate our steel industry from unfair and illegal predation by foreign producers.
In my conversations with the administration, they have made it clear that they understand the importance of preserving a domestic steel industry. They are working actively with the Congress and members of the Congressional Steel Caucus to prevent unfair competition, and deal constructively with the issue of legacy costs which burden the industry and prevent future increases in efficiency and output.
The first step in solving any problem is admitting that the problem exists. The Bush administration has gone beyond that first step by taking concrete action to help the steel industry. Congress must be prepared to support the administration and push for even further measures to guarantee a vibrant and profitable steel industry. It's been too long in coming, but finally, help is on the way.

Rep. Phil English, Pennsylvania Republican, is chairman of the Congressional Steel Caucus.



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