- The Washington Times - Monday, January 20, 2003

The steel industry has long been an unmoveable force, unable to adapt to changing market conditions for a variety of reasons. But lately, the sector has started to stir. It appears American steel may not go the way of the railroad after all. Companies are taking strategic measures to become more competitive in the global marketplace a sign that President Bush's decision last year to erect temporary tariff barriers, in reaction to worldwide protectionist measures, has given companies the ability and will to restructure.
US Steel announced last week its intention to buy National Steel. International Steel Group has made a takeover bid for Bethlehem Steel. Last year, Nucor Steel acquired Birmingham Steel, and W.L. Ross & Co. bought the liquidated assets of LTV Corp. Over the next couple of years, there could be 10-20 mergers in the sector.
There are a number of factors that have facilitated this restructuring, and Mr. Bush's decision to create a more level playing field for American steel is one. In March, the United States imposed steel tariffs of up to 30 percent for three years. Developing countries, such as South Korea, Brazil, India, Egypt and Mexico, were wisely exempted from the tariff increase.
Mr. Bush's decision to erect the tariffs was widely depicted as a politically pragmatic move to shore up support in key steel producing states. But that characterization was short-sighted. U.S. steel companies were having considerable trouble competing with foreign companies that are insulated from market pressures through tariffs, quotas, murky bank loans and regulatory provisions. These protections were causing a glut in the market, and steel production is too capital-intensive for U.S. companies to streamline quickly.
In wake of the tariff increase, steel prices have risen from their lows of about $220 per ton in January to just under $300 per ton. This price increase has given steel companies the incentive to acquire other ailing companies, while curtailing consolidation. The government's decision to pay for some steel companies' pensions and other legacy costs have also made these mergers possible. Labor unions' recent flexibility in striking reasonable deals with management has also been critical.
Still, the layoffs in the steel sector will be significant. And, while the health of the steel industry depends on an economic recovery, U.S. steel could be hurt if there is significant strengthening of the dollar, since imports will become cheaper.
So, while it is apparent that the Bush White House made the right decision, the industry nonetheless could become dependent on tariff protection. Policymakers, then, must hold serious deliberations before conceding to the industry's latest demand to erect new tariffs on steel from developing countries.


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