Reviews mixed on steel tariffs


A year after President Bush imposed tariffs on imported steel, the controversial move continues to evoke sharp criticism as well as unwavering support from steelmakers, manufacturers and industry experts.

Steelmakers applaud the tariffs for helping to shore up domestic steel prices over the past year, encourage consolidation in a troubled industry, and dissuade foreign nations from flooding the U.S. market with cheaper steel.

But many steel consumers argue that the tariffs have caused economic hardship among manufacturers, and forced them to pay higher prices for steel that goes into their products.

Bush imposed the tariffs - which raised prices on certain kinds of imported steel - to give beleaguered domestic steelmakers time to regroup after enduring a flood of foreign imports in recent years.

In the past six years, more than 30 steel producers - including Bethlehem Steel Corp. - filed for bankruptcy protection and more than 50,000 people lost their jobs because of steel plant shutdowns.

Some steel industry experts, however, think that a raft of product exclusions - more than 700 to date - has rendered the tariff program nearly ineffective.

"The basic message is that the steel companies would have gotten more out of the tariffs if there had been no exemptions and the economy had been growing more strongly," said Mary E. Deily, an associate professor of economics at Lehigh University.

"There's really no point," added Michael Gambardella, a steel industry analyst with J.P. Morgan Securities in New York.

"It's helped pricing, but I think the primary driver of improved pricing in the U.S. was the reduction of domestic steel capacity in late 2001" at four troubled steelmakers that stopped production, Gambardella said.

"About 15 percent of domestic supply of sheet product was taken out of the market. That had a much bigger impact than import restrictions."

U.S. steelmakers and the United Steelworkers of America union are pushing for the tariffs to remain for their intended three years, so that the steel industry can continue to reorganize. But because imports rose again last year, they are concerned that all the exclusions are undermining the tariff program's intended effect.

Total steel imports finished last year 8.4 percent higher than in 2001, after slowing down in the early part of the year when the tariffs were imposed, but then climbing into last summer, according to a study by Peter Morici, an international business professor at the University of Maryland, College Park.

Nancy Gravatt, a spokeswoman for the American Iron and Steel Institute, which represents most domestic steel producers, said that exclusions were granted to 105 products over the steel group's objections.

Companies are "all right with exclusions if it's a product that is produced elsewhere and cannot be produced here," Gravatt said. "We think the whole point of the tariff program is to support and encourage a viable steel industry."

The tariffs - which range from 8 percent to 30 percent in the first year but decline afterward - are scheduled for a midpoint review by the federal government in six months, and there are no guarantees that they'll be retained.

The World Trade Organization is also expected to make a ruling on the tariffs by the end of next month.

"I think the U.S. industry will come out of this [tariff] period much more competitive," Thomas J. Usher, chairman and chief executive officer of U.S. Steel Corp., said last week. "We will be competitive with almost anyone in the world."

One of the main goals of the tariff program - the consolidation of a historically fragmented steel industry - appears to have begun over the past year.

By helping to buttress domestic steel prices, the tariffs encouraged investors to look again at the steel industry for business opportunities, industry officials said.

Wilbur L. Ross Jr., chairman of International Steel Group Inc., has pointed to the tariffs as key to his company acquisitions in the steel industry. Having bought the defunct LTV Corp.'s steel mills, ISG plans to acquire Bethlehem Steel Corp., including its Sparrows Point plant in Baltimore County.

Other steelmakers are also looking at combinations or have already begun them. U.S. Steel Corp. and AK Steel Corp. are fighting to acquire National Steel Corp., another steelmaker in bankruptcy. And Nucor Corp., a large maker of steel from scrap, bought two steelmakers last year.

"I think the [tariff] program has been pretty successful," said Wayne Atwell, a steel industry analyst with Morgan Stanley. "You did see a material rise in the price of steel. It stimulated a lot of consolidation, and we're not done yet. ... My thought is that there will be other combinations down the road."

The price of hot-rolled steel, a key steel market indicator, has improved over the past 18 months, from a little over $200 a ton in late 2001 to about $300 today. In July last year, hot-rolled rose as high as $400 a ton.

But higher prices and a shortage of supply because of the tariffs have hurt manufacturers, tariff critics said.

"The thing that happens when one industry gets protected is that the downstream industries suffer," said William Gaskin, chairman of the Consuming Industries Trade Action Coalition Steel Task Force, a group representing steel consumers. "So over the past year, our members started to see dramatic price increases in their raw materials, the steel that they buy."

Companies also were hurt by supply shortages, as foreign importers diverted steel from the U.S. market.

The task force is lobbying for an analysis of the tariffs' impact on steel consumers when they come up for government review in September, Gaskin said.

"If all they look at is the steel industry alone, one conclusion may be reached," he said. "If they look at the impact on other companies, I think it tells a very different story."

There are other factors, in addition to the tariffs, that are currently working in favor of domestic steelmakers. A weaker U.S. dollar abroad and a near-insatiable appetite for steel products in Asia, particularly in China, is diverting foreign steel from U.S. shores, and even enticing domestic steelmakers to sell overseas.

Case in point: For the first time in eight years, Bethlehem Steel this month will start shipping large orders of steel to foreign shores from its Sparrows Point plant.

The Sparrows Point shipments of a combined 200,000 tons of hot-rolled steel - about 7 percent of the plant's total annual shipments - is bound for markets in Europe and Asia, where the price of steel has shot up higher than in the U.S. market in recent months.

"We are now exporting steel overseas," said Van Reiner, president of Bethlehem's Sparrows Point division, which employs 3,300 in Baltimore County. "We're exporting hot-rolled, cold-rolled and galvanized products. ... I would think that it would be fair to say that without the president invoking the tariffs, we would not have gotten to this point. It's a long chain."

Mitchell Hecht, chief financial officer for ISG, said "a lot of steel that would normally come into the U.S. is going to offshore locations where pricing is much stronger than it was in previous years.

Said Hecht: "There's an enormous sucking sound in China right now."

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