By William Reinsch:
Catching up on my summer reading, I was struck by Robert Samuelson’s August 8 column in the Washington Post, titled, “The (mostly false) globalization story.” I’m a big admirer of Samuelson, even though he’s not THE Samuelson who wrote the classic economics text that college students of my era all studied. He has been writing thoughtfully about trade policy for a long time and is always insightful, which is not to say that I always agree with him. In this particular case, I agree with his general conclusion but disagree with the example he has chosen to illustrate his point.
His central argument is that the economic difficulties such as job losses that people complain about are less the result of trade policy than they are of productivity improvements brought on largely by advances in technology. In other words, globalization is getting a bad rap. He summarizes his thinking near the end of his column:
“We are being fed a largely false narrative on globalization. It is not the source of most of our problems. All dynamic economies experience constant disruptions from changing technologies, shifting consumer tastes and inevitable business cycles. Some instabilities come from abroad; most – for the United States – originate at home.”
There is not a huge dispute about this among economists, though you will never get 100% of them on the same page. There is, as everybody knows, a huge dispute about it in our current political debate. Clearly, many members of the public and some candidates would rather blame the foreigners than ourselves for our problems, a point I have made frequently in previous writings.
However, Samuelson’s choice of the steel industry to prove his point does the industry and his argument a disservice. (Full disclosure: in addition to my work at the Stimson Center, I am also a senior advisor at Kelley, Drye & Warren, a law firm that has for many years represented parts of the domestic steel industry.) He gets the basics right – since 1973 the industry has shed three-fourths of its workers while maintaining production at roughly the same level. This is clearly a case of productivity improvement, which he attributes largely to the rise of mini-mills that make steel by melting scrap rather than from scratch with iron ore. The implication is that a kind of Darwinian selection has taken place with the more efficient replacing the less so.
In a sense, it has, but I would suggest the picture is more complicated than that. During my 20 years on Capitol Hill it was my privilege to work for senators from two steel states – John Heinz (Pennsylvania) and Jay Rockefeller (West Virginia). (More full disclosure.) I staffed the Senate Steel Caucus for both of them and in the process learned two big things about the industry.
First, steel matters. We’re not talking about plastic toys or canned mushroom (another Pennsylvania product that had trade problems). An integrated steel industry is the foundation of – and indispensable to – a modern manufacturing economy, which is one reason why we have seen so many other countries try to develop one. At the end of the day, mini-mills are not enough. Somebody, somewhere, has to be around to make the steel that eventually becomes the scrap they will melt.
Second, the industry has unquestionably been the victim of unfair trade practices for more than 30 years. Samuelson implicitly acknowledges that when he writes about the current glut, due largely to enormous increases in Chinese capacity – they now produce about half the world’s steel – and Chinese persistence in exporting their excess production which has driven world prices down to disastrous levels. The result has been a wave of antidumping and subsidy complaints American companies have filed against the Chinese and other foreign companies who have tried to keep up by cutting their prices (reminding everyone of that old joke about selling at a loss and making it up on volume).
What Samuelson fails to note is that this is not new. Every president going back to at least Jimmy Carter has had to contend with some kind of steel crisis, all of them initiated by the sale of dumped and/or subsidized product in the U.S. Different presidents have dealt with the problem in different ways, but the two common elements have been the unfair trade practices and the industry’s ability to prove them and to prove they have been injured by them.
Samuelson calls this a short-term expedient, which is true, and argues for a global agreement to reduce capacity, which would be nice if the Chinese would both agree to it and then implement it. So far that hasn’t happened. He does say, “U.S. steelworkers and companies cannot compete against foreign subsidies” but then returns to the “larger picture” of productivity improvements.
Instead, I would go back to the first lesson I mentioned above – this industry matters. With all due respect to the plastic toy and mushrooms people, the country can live with depending on imports of those items. We cannot live – and should not have to live – without an integrated steel industry. That does not mean ignoring productivity – the industry clearly has not done that. But it also does not mean we should ignore the trade part of the problem. Samuelson is right – a global agreement on capacity would be a good move, but it would be folly to do nothing but wait for that. Short term expedient or not, a strong defense against unfair trade practices in this industry should also be a key element of our policy.
___
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.
What to Do About Steel
By William Reinsch
In Trade & Technology
By William Reinsch:
Catching up on my summer reading, I was struck by Robert Samuelson’s August 8 column in the Washington Post, titled, “The (mostly false) globalization story.” I’m a big admirer of Samuelson, even though he’s not THE Samuelson who wrote the classic economics text that college students of my era all studied. He has been writing thoughtfully about trade policy for a long time and is always insightful, which is not to say that I always agree with him. In this particular case, I agree with his general conclusion but disagree with the example he has chosen to illustrate his point.
His central argument is that the economic difficulties such as job losses that people complain about are less the result of trade policy than they are of productivity improvements brought on largely by advances in technology. In other words, globalization is getting a bad rap. He summarizes his thinking near the end of his column:
“We are being fed a largely false narrative on globalization. It is not the source of most of our problems. All dynamic economies experience constant disruptions from changing technologies, shifting consumer tastes and inevitable business cycles. Some instabilities come from abroad; most – for the United States – originate at home.”
There is not a huge dispute about this among economists, though you will never get 100% of them on the same page. There is, as everybody knows, a huge dispute about it in our current political debate. Clearly, many members of the public and some candidates would rather blame the foreigners than ourselves for our problems, a point I have made frequently in previous writings.
However, Samuelson’s choice of the steel industry to prove his point does the industry and his argument a disservice. (Full disclosure: in addition to my work at the Stimson Center, I am also a senior advisor at Kelley, Drye & Warren, a law firm that has for many years represented parts of the domestic steel industry.) He gets the basics right – since 1973 the industry has shed three-fourths of its workers while maintaining production at roughly the same level. This is clearly a case of productivity improvement, which he attributes largely to the rise of mini-mills that make steel by melting scrap rather than from scratch with iron ore. The implication is that a kind of Darwinian selection has taken place with the more efficient replacing the less so.
In a sense, it has, but I would suggest the picture is more complicated than that. During my 20 years on Capitol Hill it was my privilege to work for senators from two steel states – John Heinz (Pennsylvania) and Jay Rockefeller (West Virginia). (More full disclosure.) I staffed the Senate Steel Caucus for both of them and in the process learned two big things about the industry.
First, steel matters. We’re not talking about plastic toys or canned mushroom (another Pennsylvania product that had trade problems). An integrated steel industry is the foundation of – and indispensable to – a modern manufacturing economy, which is one reason why we have seen so many other countries try to develop one. At the end of the day, mini-mills are not enough. Somebody, somewhere, has to be around to make the steel that eventually becomes the scrap they will melt.
Second, the industry has unquestionably been the victim of unfair trade practices for more than 30 years. Samuelson implicitly acknowledges that when he writes about the current glut, due largely to enormous increases in Chinese capacity – they now produce about half the world’s steel – and Chinese persistence in exporting their excess production which has driven world prices down to disastrous levels. The result has been a wave of antidumping and subsidy complaints American companies have filed against the Chinese and other foreign companies who have tried to keep up by cutting their prices (reminding everyone of that old joke about selling at a loss and making it up on volume).
What Samuelson fails to note is that this is not new. Every president going back to at least Jimmy Carter has had to contend with some kind of steel crisis, all of them initiated by the sale of dumped and/or subsidized product in the U.S. Different presidents have dealt with the problem in different ways, but the two common elements have been the unfair trade practices and the industry’s ability to prove them and to prove they have been injured by them.
Samuelson calls this a short-term expedient, which is true, and argues for a global agreement to reduce capacity, which would be nice if the Chinese would both agree to it and then implement it. So far that hasn’t happened. He does say, “U.S. steelworkers and companies cannot compete against foreign subsidies” but then returns to the “larger picture” of productivity improvements.
Instead, I would go back to the first lesson I mentioned above – this industry matters. With all due respect to the plastic toy and mushrooms people, the country can live with depending on imports of those items. We cannot live – and should not have to live – without an integrated steel industry. That does not mean ignoring productivity – the industry clearly has not done that. But it also does not mean we should ignore the trade part of the problem. Samuelson is right – a global agreement on capacity would be a good move, but it would be folly to do nothing but wait for that. Short term expedient or not, a strong defense against unfair trade practices in this industry should also be a key element of our policy.
___
William Reinsch is a Distinguished Fellow with the Stimson Center, where he works principally with the Center’s Trade21 initiative.
Photo credit: Shannon O’toole via Flickr