Half an Ingot for the Steel Industry

By John S. DeMott

Reagan rejects quotas but accepts another form of protectionism

In a long-awaited decision last week that left no one jumping for joy, President Reagan ruled out import quotas to shield the American steel industry from cheaper foreign steel. Instead he opted for a system of voluntary restraints on shipments to the U.S. by producers in Japan, Brazil, South Korea and elsewhere and vowed stiffer enforcement of existing Fair Trade laws. Unionized steelworkers said Reagan did not go far enough toward protecting their jobs. The steel industry, drained by $4.7 billion in losses during the past two years partly because of foreign competition, had lobbied for more protection.

In deciding against strict import quotas, Reagan turned down the recommendations of the U.S. International Trade Commission. It said in July that the domestic industry was being damaged by imports and urged a five-year program of high tariffs and quotas for such important products as sheet and strip steel, plate and wire. Reagan would have none of it. Quotas, he said, would do more harm than good to the economy and not "be in the national interest," even though they might temporarily save some jobs in steel. Voluntary restraints seemed to be the only workable way to go.

While steel unions and companies were urging quotas, other interest groups were lobbying against them. Farmers were opposed because they feared foreign governments would retaliate by restricting U.S. agricultural sales. U.S. banks did not want the White House to be too restrictive against steel from Brazil and other developing countries, which need the money from exports to pay interest on debt owed to American banks. Cheaper foreign steel keeps the price of Detroit's cars more competitive with those from Japan, so Detroit's autoworkers have reason to approve Reagan's decision. Major steel users who are big exporters, Caterpillar Tractor of Peoria, Ill., for one, are also in favor of lower-cost steel. It allows them to make products for sale abroad at more competitive prices.

Under the program announced last week, U.S. Trade Representative William Brock will begin talks with foreign governments about reducing the inflow of their steel from about 25% of the $30 billion U.S. market to 18 1/2%. That is slightly more than the 15% sought by the industry and its unions. This would be similar to a plan worked out by the Reagan Administration in 1981 that put limits on the number of cars Japanese manufacturers shipped to the U.S. In steel, as in cars, the threat of more restrictive measures by Congress will be a lever in the hands of U.S. negotiators. Washington could also threaten to block foreign access to the U.S. market if the other countries do not go along with lower steel exports.

In addition to the so-called voluntary restraints, the Reagan plan calls for stricter enforcement of laws against dumping, wherein steelmakers sell products in the U.S. for less than their cost of production. Merely suggesting that exporters might be subjected to unfair trade investigations could be enough to stop dumping.

Reagan's ruling was a politically astute move in an election year; thousands of votes in such steel-producing states as Pennsylvania, Illinois, Indiana and Ohio are likely to be influenced by the decision. Indeed, Bethlehem Steel and the Steelworkers Union had timed their petition to the Trade Commission so that Reagan would be forced to make a decision in the middle of the campaign. In an appeal to Midwestern Rust Bowl voters the day before Reagan's announcement, Walter Mondale had called for the very import quotas the President rejected.

Steel-industry executives who sought the quotas nonetheless praised Reagan's action. Bethlehem Chairman Donald H. Trautlein called it "an appropriate response." U.S. Steel Chairman David M. Roderick said the President's plan "moves to correct the steel trade program in a comprehensive and enforceable fashion. If fully implemented, it would put 25,000 to 40,000 steelworkers back on the job."

The decision on steel leaves the Reagan Administration with a mixed record on trade issues. In the spring of 1983, the President agreed to sharply higher tariffs on Japanese motorcycles to assist Harley-Davidson, the sole remaining U.S. motorcycle maker. Three weeks ago, though, he refused to protect the copper-mining industry with quotas that would have restricted imports from Chile, Peru, Zaire and other copper-producing countries. The President has staunchly advocated free trade in speeches, but sometimes, like last week, he has compromised in its practice.

--By John S. DeMott. Reported by William Stewart/Washington

With reporting by William Stewart/Washington