August, 2001: The Yankee Trader

By Greg Rushford
Published in The Rushford Report

This doesn’t pass the laugh test.

U.S. steel mills constantly assert the moral high ground in their continuing war with foreign competitors. You’ve heard the Stand-Up-for-Steel drill: Foreigners are untrustworthy traffickers in “illegally-dumped,” and “subsidized” steel products. Citizens in towns like Weirton and Youngstown are reared on this economic poison from the time they are children. The reason this doesn’t pass the laugh test is that the U.S. mills themselves engage in the exact same economic practices that they deplore.

U.S. mills import “dumped” raw materials to run their mills to make their steel. They import “dumped” foreign steel. They themselves “dump.” There is also the awkward matter of the $17-plus billion in government subsidies that has been funneled to U.S. mills in the last quarter century.

“Some people throw stones at other people’s glass houses, while they happily build walls around their own,” observes Columbia University economist Jagdish Bhagwati.

Domestic steel executives do not deny that their own business practices mirror those of their foreign competitors — they just try to build a wall of silence around the subject.

It‘s much the same with the steel industry‘s allies on Capitol Hill. On the rare occasions when they do mention the taboo topic of the domestic steel industry’s own reliance on imports, lawmakers tend to get trapped in their own rhetoric.

Take Rep. Bart Stupak (D-Mich.), a man who passionately accuses foreign steel makers of “illegal dumping” in U.S. markets. “These illegally-dumped products threaten the very infrastructure of the steel industry, from coke ovens and blast furnaces to iron ore production in my district,” the lawmaker from northern Michigan complained in a typical press release back in March.

But in the very same press release, Stupak revealed that he is also mad at the domestic steel mills, on grounds that they, too, buy “dumped” products from the foreigners. Stupak expressed anger that the U.S. mills import steel ingots, slabs, billets and iron ore pellets from nefarious foreigners.

Of course they do. The U.S. steel industry needs those imports. As I reported in June, some 8.5 million tons of the 38 million tons of foreign steel that were imported last year, were semi-finished slabs that went directly to integrated U.S. steel mills. How else would the domestic mills have made their finished steel? In all, the U.S. steel industry itself imports at least 25 percent and perhaps as much as a third of all the foreign steel that (benefits) U.S. markets. These imports are obviously good for the U.S. economy.

But Rep. Stupak’s constituents in the iron ore industry would like to force domestic steel mills buy their iron ore at higher prices, without the competition from overseas. The iron ore guys are upset that the steel guys get all the political attention. So Stupak and Rep. James Oberstar (D-Minn.), who represents Minnnesota’s Iron Range, have come up with a legislative fix. They propose that no U.S. steel mill that receives subsidies under the Emergency Steel Loan Guarantee Act of 1999 should be allowed to use the government-backed loans “to buy illegally dumped foreign steel products.”

“If we want to protect the U.S. steel industry and jobs in northern Michigan, it makes no sense to use taxpayer dollars to protect one segment of the industry, when those dollars are purchasing products from countries that are injuring other segments of the industry,” Stupak fumed in his March press release. The congressman displayed no sense of irony in saying that.

Michigan Democrat Sen. Carl Levin is another lawmaker who wants to have it both ways. “[S]ome U.S. steel mills have stopped purchasing iron ore, finding it cheaper to buy semi-finished imported steel slab, rather than make it themselves,” Levin recently communicated to his constituents. “This is a devastating trend for the mines and, if allowed to continue unchecked, could mean the beginning of the demise of our mines and our nation’s integrated domestic steel production.”

The preceding is a wonderful sentence. With perfect circular logic, Levin charges that the U.S. integrated steel mills are buying cheap imports that threaten to cause the demise of…our integrated steel mills.

But the U.S. mills are only doing what every other steel consumer in America likes to do: import the cheapest raw materials that they can find.

After they are finished making their steel from all this “dumped” imported raw material, the U.S. mills feel no compunction about “dumping” it, too, if that makes economic sense.

American Metal Market reporter Frank Haflich reported earlier this year from Los Angeles that Eastern and Midwestern steel mills were “unloading flat rolled on the West Coast at low prices.” The U.S. mills east of the Rockies “playing the same role here as the foreign mills they accuse of dumping in the United States,” Haflich noted.

C. Lourenco Goncalves, the chief executive officer of California Steel Industries, complained bitterly to Haflich that Eastern producers offered hot rolled at prices that undercut mills like his, even when costs of freight to ship the stuff out West are factored in.

“If I had anti-dumping laws to protect CSI against this irrational behavior, I would use them against these mills,” Goncalves declared.

Actually, the behavior isn’t irrational at all. The U.S. mills simply engage in what economists call price discrimination (the rest of us call it ruthless price cutting.) Unless there is evidence of predatory intent, such economic activity is applauded as part of healthy market competition. But when foreigners do the same thing, it’s called “international” price discrimination — or “dumping.” And the antidumping laws require no showing of predation.

U.S. antidumping laws penalize a businessman from, say, Windsor, Ontario from offering a steel-related (or any other) product to customers across the bridge in Detroit at prices that are lower in the United States than in Canada. That same Detroit businessman can sell his products in California, half a continent away, at lower prices than in Michigan. In fact, that Detroit businessman can sell steel in California at a loss. But foreigners — even those a stone’s throw away in Canada — are penalized through the antidumping laws if they try to compete in American markets on the same playing field.

Few members of the public — and certainly very few members of the nation’s press corps — understand the nutty logic that drives the antidumping laws. The constant drumbeat that Americans are the victims of “unfair” foreign traders leaves the public confused. If the public ever catches on, the U.S. steel lobby will have to worry about being the butt of public ridicule.

If ordinary Americans knew about a new antidumping case, “Blast Furnace Coke Products from China and Japan, they could catch on.

The petition was filed on June 29 by W.N. Harrell Smith, IV, of Gardner, Carton & Douglas on behalf of the Committee for Fair Coke Trade and the United Steelworkers of America. The fair-coke committee’s members are four domestic blast furnace coke producers in Pennsylvania, Michigan, and Chicago. They ask that tariffs ranging from 132- to 207 percent be slapped on Chinese coke producers. The U.S. petitioners want Japanese coke concerns like Mitsubishi Chemical Corp. (represented by Donald Morgan of Cleary, Gottlieb) to be hit with 73 percent dumping tariffs. The numbers were conjured up for the domestic petitioners by Washington-based economist Richard Boltuck, of Charles River Associates, Inc; and Jagdish Agarwal and David Chin of the firm’s Boston offices.

At first glance, this is just another antidumping case.

That is, if you don’t know that Bethlehem Steel also makes coke. Bethlehem Steel — which is certainly not shy when it comes to filing antidumping petitions against “unfair” foreign traders — isn’t participating in the new petition against Japan and China. Neither are other U.S. coke producers like LTV Steel Co., Inc., National Steel Corp., Sun Coke, and U.S. Steel Group. These domestic coke producers are officially “neutral.”

Why?

Guess where they get their coke?

Nancy Kelly reported in American Metal Market last month that Bethlehem Steel has been buying 1.1 million tons of coke annually — from China and Japan. American jobs depend upon Bethlehem’s continued access to affordable coke.
It is not easy getting domestic steel executives to talk about this.

Last month and the month before that, I tried to contact Duane Dunham, CEO of Bethlehem Steel, to get his side of the story. I have even offered Dunham space in this publication to write 1,000 words. Defend yourself from the charges that mills like yours do the same things as you say the foreigners do, I challenged. Dunham has not responded. Neither have officials at the American Iron & Steel Institute.

The politicians who find it convenient for their own careers to front for the domestic steel industry, also find it convenient to avert their eyes.
I have called the office of Sen. Jay Rockefeller (D-Steel Lobby) several times to see if the senator would care to talk about the domestic steel industry’s reliance upon imports. He hasn’t wanted to.

I sent a fax that detailed the facts in this article to Senate Finance Committee Chairman Max Baucus. Would the senator — who has been spending a lot of time in recent months bashing foreign steel makers and advocating trade protection for U.S. steel makers — care to refute these facts? Would the senator care to say that mainstream economists like Alan Greenspan are wrong when they say that imported steel is beneficial to the entire American economy, not just the steel industry itself?

No comment.

Dunham, AISI lobbyists, Rockefeller, Baucus, and the whole Stand-Up-for-Steel crowd are always outspoken when it comes to blaming foreigners. But when asked about the U.S. steel industry’s own glass house, these guys are about as loquacious as Gary Condit.

It is a wonder that they aren’t the laughingstock of Washington.

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