Let Big Steel Stand On Its Own

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"Do we want to have a strong domestic steel industry and be able to rebuild America's infrastructure? Do we want the next World Trade Center to be built with American steel?"

Big Steel is flexing its muscle in Washington again. They want consolidation, a go-ahead from trustbusters to merge ailing giants U.S. Steel and Bethlehem Steel along with anyone else who cares to join. They want government limits on imports of the cheaper foreign-made steel that's pushing them toward bankruptcy (Bethlehem already arrived last month) and tariffs on the steel that does get imported. They want the government to assume some $13 billion in pension and health-care costs that steelmakers promised retirees long ago, when there were still fewer of them than active workers — the decline of the industry has left its 600,000 retirees outnumbering workers by 4 to 1 — and simply can't afford today. And they want it now.

Lobbying is such an ugly word — so let's call it extortion. Why should George W. Bush even contemplate signing away his free-market beliefs right in the middle of a renewed push in Congress for fast-track authority and freer world trade? Because the Pension Benefit Guarantee Act already puts the government on the hook for at least $2 billion in pension costs if Big Steel goes under. Because steel-state congressmen might be persuaded to help Bush pass free-trade legislation, if their constituents are the exception to the rule. Because the steel states and the swing states — West Virginia, Ohio, Pennsylvania —are one and the same.

"I'd make sure all those retirees know who in Washington abandoned them," Leo W. Gerard, president of the steelworkers' union and owner of the "patriotic" plea at the top of this space, told the New York Times.

It became obvious Friday, with the recommendation by the federal International Trade Commission that Congress pass temporary tariffs from 5 percent to 40 percent on 16 different steel products, that the White House will at least be playing ball. (The industry, which has lost 26 companies to bankruptcy in recent years, wanted tariffs of 30-50 percent.) And it's too much for any free- marketeer to hope that the next few months won't see Bush, driven by his unshakable belief in winning West Virginia again, is going to find some way to keep the industry (and the politicians it owns) at least reasonably happy.

The U.S. steel industry's problems are roughly the same as they were at the turn of the century when Carnegie Steel, Federal Steel and eight other steel companies formed the behemoth U.S. Steel: Excess capacity, slumping prices and profit margins squeezed by too much competition. (The pension problem came later.) That merger helped, but debt-ridden, none-too-efficient U.S. Steel steadily shed market share over the next century — especially to an explosion of foreign competitors after WWII — and today produces only marginally more steel than it did in 1901.

It's not a great time to be in the business. The global economy is slumping and the world's iron-into-steel producers now churn out about 850 million tons of product for a market that demands only 700 million tons. U.S. steel makers say the cheaper steel that comes to U.S. shores from Japan, Brazil, China and other countries is "dumped," or subsidized by those countries' governments. The foreign steel makers and the U.S. companies who buy from them say U.S. steel companies have outdated facilities that make production more expensive. Either way, the U.S. steel industry, between the profits and the pensions, is on a fast track to trouble.

So what, exactly, is the U.S. government supposed to do about it? The patriotic "national interest" line pushed so hard by steel makers (and a zillion other industries) since Sept. 11 is a bit shaky. Domestic producers could produce a fraction of what they do now and still have enough to cover the defense industry's needs, and even if they all went out of business it's hard to imagine a war that would induce countries like South Korea, Mexico, Argentina and Japan to impose some politically inspired OPEC-style embargo.

Meanwhile, there's nothing even vaguely patriotic about the U.S. government conspiring to deprive carmakers, appliance makers, construction companies and the rest of the steel-consuming country of their capitalistic right to the best available steel at the best available price. Even companies that proudly buy made-in-the-U.S.A. steel don't deserve tariffs, quotas or any other anti- competitive shenanigans drive up world prices and their own production costs, and neither do the American shoppers that will be footing the bill.

But steel consumers and ordinary shoppers don't have the pull in Washington that Big Steel does (though you'd think they'd get a little more consideration in the middle of a recession), and it does look like the White House or Congress is going to have to fork over something to protect their political hides. Is there a way to balance America's values of free markets, free trade and competitive pricing with the patriotic nostalgia of the time when U.S. Steel was the industrial soul of an industrial nation?

It ain't tariffs. Go down that road and you get a trade war, not to mention the other-shoe problem of cheaper Nissans made with cheaper foreign steel needing tariffs of their own to spare GM. It ain't quotas — raising product prices to prop up commodity prices is not a smart way to grow an economy in which services are 80 percent of GDP and consumers pull 66 percent of the economic weight. And Paul O'Neill going to Japan and telling them to shut down two plants so two can live in West Virginia? A superpower that believes in its own American Way doesn't go strong-arming for charity.

Here's what Washington should do for Big Steel. Let them merge to their heart's content — if it was OK for economy-of-scale-seekers Exxon and Mobil and Compaq and Hewlett Packard, the steel industry deserves the same shot. Heck, if it'll get their fast-track votes, give 'em $10 billion or so for the pensions — there's already 226 votes in the House — and let the retirees have their money. None of this is their fault.

And then cut 'em loose. No tariffs. No quotas. No production cuts ordered by diplomats. No more — if the U.S. wants to go nation-to-nation in the next decade pushing for freer, fairer global trade, it would do well not have any of those hypocrisies hanging around its neck. Let Big Steel find a size and a shape commensurate with its competitive abilities — 21st century America doesn't < I>need its own steel behemoth any more than it needs its own TV makers.

And as for the new World Trade Center, presumably the next proud symbol of pure American capitalism for the next century, go ahead and build it with American steel — but only if it's the best steel, at the best price, that the world market can offer.

Or else it won't deserve the name.