What U.S. Producers Are Up Against

President Nixon has long been worried that the U.S. is losing out in world markets because domestic labor costs are inflating so fast and kicking prices up so high. With that in mind, he stretched his usual hands-off approach to private pricing matters just a bit last week and called into the White House leaders of the two sides in the current steel-labor negotiations. He gave them both an innocuous pep talk, urging them to make a settlement that would allow the steel industry to remain at least somewhat competitive in the world. Budget Chief George Shultz assured newsmen that the President "wasn't trying to tell them what to settle for." The Administration is resigned to a steel deal that will push up labor costs by at least 10% a year--and give workers in other industries another inflationary target to aim for.

Several key indicators show just how badly these inflationary settlements are hurting the U.S. Items: > Steel imports in May hit1,800,000 tons--an amount equal to 16% of the nation's overall steel market. The total was the second highest in history, topped only in August 1968, when customers were also hedging against a strike. > Sales of imported cars in June surged to a historic high of 149,000, capturing 16.1% of the U.S. market, or well over one-quarter more than a year ago. In the year's first six months, sales of Volkswagens dipped slightly to 289,000, but that decline was more than made up by the incredible rise of Japanese cars. Toyotas rode up 57%, to 140,000 cars sold, and Datsuns jumped 136%, to 99,000. Japanese cars are selling fast because of high quality and low price, and their manufacturers benefit notably from the relatively moderate cost of Japanese steel (automaking steel sells for an average of $156 a ton in Japan v. $200 a ton in the U.S.). > The Commerce Department predicted that the nation's merchandise trade surplus will fall from $2.7 billion last year to about $500 million this year, the lowest since 1937. Reason: imports are rising much faster than exports. > Partly because the demands of U.S. labor are allowing foreign manufacturers to grab more and more American markets, domestic manufacturers operated their plants at only 73.1% of capacity during the first quarter, an inefficient level that was the lowest since the late 1950s. It is likely that the nation's factories also ran at a slow pace in the second quarter. One indicator: American steel production has fallen nearly 17% in the two months since early May.

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