|
Politicizing global trade
|
 |
March 5, 1999: 3:44 p.m. ET
Unions, politicians propel steel to forefront of U.S-Japan trade debate
|
NEW YORK (CNNfn) - In the arena of international trade, the best you can hope for is an obstructed view.
As highly-publicized cases, such as the recent U.S.-Japanese dispute over steel, increasingly dominate the world stage, it can be hard to see what's developing behind the scenes.
The U.S.-Japanese debate over steel is rooted in the Asian financial crisis of the past two years. With Japan's economy in shreds, the value of the yen has sharply declined and Japanese goods, including steel, have become significantly cheaper in the global marketplace.
As a result, Japanese steel imports to the United States have skyrocketed 74 percent since July of 1997, prompting many U.S. steel makers to cry foul.
Those cries were heard by the Commerce Department, which set preliminary dumping duties on Japanese (and Brazilian) hot-rolled steel imports in November, after industry leaders filed a series of complaints alleging unfair trade.
Japanese steel imports plunged 99.7 percent in January.
Some ardent free-traders consider the decision unfair, but the toll Japanese steel imports have taken on the sector is significant.
U.S. steel industry still bleeding
Over 10,000 U.S. steel workers have lost their jobs in the past 18 months, three steel companies have gone bankrupt and many others are operating at tremendous losses. Additionally, the United Steelworkers of America estimates that capacity utilization has dropped to 77.9 percent from 89.4 percent in U.S. steel mills since the crisis began in 1997.
"Any time capacity drops below 80 percent in the steel industry, it has a drastic impact," George Becker, the union's president said.
The issue has garnered attention from Capitol Hill as well, with Representative Pete Visclosky Thursday unveiling a new bill aimed at curbing overseas steel imports.
The Indiana Democrat shrugged off the January drop in Japanese steel imports.
"It's all relative," Visclosky said. "Imports from Japan remain 74 percent higher than they were pre-crisis."
Much ado about nothing?
But critics say government officials and labor unions are overreacting and contend politics are at the heart of the recent trade rulings against Japan.
For one, while the steel industry has clearly suffered from the decline in steel prices, other sectors have gained. Auto makers and construction companies, which depend heavily on steel for their products, have seen their costs decline and have been able to pass those savings on to consumers.
"There's no question that industries that are purchasing steel are benefiting," Andrew Bernard, associate professor of economics at the Yale School of Management, said. "But unlike industries that are hurt, consumers will never organize."
Those benefiting from cheap overseas imports keep quiet, in part, Bernard says, because of a need to demonstrate solidarity. Auto makers, for example, are unlikely to defend Japanese steel dumping since they might find themselves arguing against cheap car imports at a later date.
And those benefiting aren't the only ones playing politics.
According to Ken Hoffman, steel analyst for Prudential Securities, steel workers may be more worried about the renewal of their six-year contract in July than Japan's trade policies.
"The steel workers … need the price of steel to be high to get a good contract, so they seized on this trade case action, went to Washington and launched an unprecedented blitz and got a huge amount of attention," Hoffman said.
Democrats, hoping to land labor votes with protectionist posturing over an issue Hoffman calls "not a big deal," were eager to respond.
Even Japanese exporters are in on the theatrics, according to Hoffman.
"Japan is not innocent. They flooded the markets knowing they were going to get hit (with penalties). They know the game that is being played," he said.
Hoffman expects Japan to reduce imports for the foreseeable future, now that it has reduced its inventories and steel prices in Asia are back on the rise.
Finally, there are strong signals that the U.S. steel industry is recovering, as worldwide demand for steel picks up.
Hoffman, who admits U.S. steel firms were "massacred" last year, predicts many companies will pare their losses in the second quarter of 1999. "It should be a hell of a steel year," he said.
The big picture
While domestic politics and industry interests clearly play into the steel debate, all is not rosy between the United States and Japan.
The trade deficit between the two countries grew 14 percent in 1998, as the economic turmoil in the Pacific Rim took its toll.
"The financial crisis has effected our export performance in the region unbelievably," said Marjory Searing, the Commerce Department's deputy assistant secretary for Asia and the Pacific.
But ironically, with the exception of steel, the United States is not seeing a huge wave of imports, says Searing.
Most trade issues regarding Japan traditionally have had more to do with getting then once powerful Asian country to open up its markets and that continues to be the case, despite the recent crisis. Construction and pharmaceutical sectors are among those the United States is hoping to see deregulated.
A bigger concern among economists is the possibility of a slowdown in the United States.
"If the U.S. economy slows down, U.S. demand for domestic goods will slow down," said Yale's Bernard. "The tension between slower overall growth and increased need for exporters will result in more companies asking for protection."
That could be a slippery slope, Bernard says.
"It's hard to unwind protectionism," said Bernard, adding that retaliation can be expected if the United States starts to close its markets.
Tighter trade borders could also result in higher prices for consumers and make it more difficult for the United States to compete in the global marketplace.
"I can understand the steel situation as the steel imports start to put pressure on domestic companies, but we should allow free trade to work as long as we can," said Ronald Reuss, chief economist at Piper Jaffray Companies. "Once Japan's economy picks up, their buying power will be diverted back into the U.S. market."
With international trade accounting for 12 to 15 percent of the U.S.'s gross national product, "it is in our interest to have other countries growing at sustainable rates," added Bernard.
And Japan, which is the U.S.'s second largest trading partner, accounts for about a third of the U.S. trade deficit.
Unfortunately, the long-term and larger macroeconomic picture is often lost on those deeply entrenched in the game.
Workers are quick to blame layoffs on competition from imports, Searing says, but rarely do they credit exports for new jobs.
"Trade views rarely have anything to do with logic, the steel case is a classic example," Searing said. ".. We still have a major problem in the U.S. there is not a consensus that trade liberalization is good for us. 
-- by staff writer Nicole Jacoby
|
|
|
|
|
 |
|
