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Many thanks to Tony Adragna and Will Vehrs, still shouting 'cross the Potomac at QuasiPundit. Early Camp Enron material can be found in QP's Dispatches department.
Thursday, March 07, 2002

 
--- The Real Steel Deal - Part I ---

GWB finally bit the steel import bullet by promulgating a temorary (3 yr) compromise (30% of the requested 40%) tariff on imports from selected nations (Brazil, Si, Argentina, No!). The Gordian Knot is not cut, but rejiggered with a complicated lash-up of bungee cords.

Water over the dam? Gathering storm? Or teachable moment? Let's pull for the latter, and see how far we get. Hemmed in on all sides by garbage ideology and vested interest pleadings, there is a residual cluster of awkward issues with wider implications.

The Marketarian Axis pretty much insists there's no issue ... no such thing as dumping, or overproduction, or strategic predation, or standed investment, because there can't be, because there never is, because The Market is always right, because if The Market was wrong a good measure of force behind all their arguments would vanish in a puff of smoke and mirrors. [Despite pretensions to the contrary, this dogma has no foundation in any constructive theory of market equilibria ... even the one you might think you remember learning in Econ 101.] Less extreme variants of this creed are popular in Marketaria's outlying provinces.

The Protectionist Axis imagines trade is bad in general. Or at least imports are bad ... and it's hard to construct an export-only trading regime. This school closes its eyes to the general truism that voluntary exchange creates value -- at least where exchange crosses national borders. (Does the principle apply differently to trade across the street, or across town, or across the county line, or between Seattle and Miami?) They also cringe at the very real short-run costs of creative destruction, and would defer them as long as possible -- maybe forever -- even at the expense of long-run output and income. Like the Marketarians, they are surrounded by hangers-on who are soft on principles but hard on cases.

Ideology aside, there's a pragmatic alliance of vested interests favoring domestic steel, to whom the record is clear. Imports are predatory. Any bump in steel prices would be diluted harmlessly through the value chain. The industry is getting its act together, it just needs a little more time. Domestic steel means jobs.

There an opposing alliance of vested interests favoring cheap steel, to whom the record is also clear. The domestic industry missed the restructuring boat. Imports are declining anyway. American products will be more expensive and less competitive. Cheap steel means jobs.

And there are opposed interests here and abroad ... though both fear the outbreak of trade war. Either side can present a convincing case -- the structure and conduct of international steel markets either do or do not justify protective tariffs under existing agreements. Neither camp is inclined to yield an inch (or a centimeter) on the particulars.

Most organized labor hugs the protectionist side, favoring arguments over net numbers. The arguments and precedents are reusable in other arenas, in which aggressive trade policy might not entail net loss of US jobs (as it probably does in the case of steel). US industry generally favors open trade ... partly because US industry benefits from cheap steel, partly because US industry is multinational industry and stands to lose on both sides of the exchange if the steel case triggers a braoder contraction in trade.

From the fortified position behind any one of these lines, the question is simple and the answer is clear ... that's part of what makes the lines themselves attractive. But in the cramped space between these lines the answers are far from clear.

In the real world of real markets, competition can be strategic and predatory, legacy investments can become stranded, excess capacity can exist and persist, and the upshot can be locally unfair and/or globally counterproductive. In this world, price-tropism is at best half the story, our range of options is wider and the web of consequences is stickier. What's going on in that neglected realm? We'll take that up in The Real Steel Deal, Part II