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The Center Fails

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By Sebastian Mallaby
Monday, October 16, 2006

With Mark Warner out of the 2008 Demstakes, the chief anti-Hillary centrist is Sen. Evan Bayh of Indiana. This is a depressing commentary on the state of the Democratic Party. Bayh may have cleared his schedule to woo Warner supporters on Thursday. But he has yet to prove himself a real contender -- and he may not be a real centrist, either.

Two weeks ago Bayh circulated a preposterous letter to his Senate colleagues. It urged them to oppose what Bayh called "documented unfair trade" in a type of steel that's used in vehicles. It noted the Commerce Department's finding that lifting the tariff on this steel would lead to dumping by foreign producers. That would hurt U.S. steelmakers, the letter continued; so when the fate of the tariff is considered at a sunset review tomorrow, it should on no account be lifted.

This is not a policy that protects workers, as Bayh's letter pretended. It's a sellout to a self-serving lobby. It would help the steel guys at the expense of the car guys, even though the car guys are hurting more and they employ more workers.

The tariff that Bayh wants to preserve is one of more than a hundred that protect the steel industry. These fortifications were erected on the theory that the steel business is inherently unfair because every nation in the world wants its own steelmaker. The creation of these national champions guarantees global oversupply of steel, or so the argument used to go. Therefore the United States had to protect itself from dumpers' unfairly low prices.

This argument was always flawed. If foreigners wanted to sell artificially cheap steel, the United States should have been happy to pocket the subsidy. But the protectionist argument is now worse than flawed, because the steel industry has changed substantially. A wave of mergers has rationalized some of the old national champions, and the alleged oversupply of steel has disappeared in the face of exploding demand from developing countries.

You can see this transformation in the steel companies' own statements. When they are lobbying senators such as Bayh, the steel guys plead that they are poor and weak and hungry. But when they are addressing investors on Wall Street, they boast that steel is scarce and that they can charge what they want for it.

If there is now a sellers' market in steel, why does the Commerce Department assert that lifting the tariff would trigger dumping? It's nice that you asked, because the answer is hilarious. The department's practice, in sunset reviews such as this one, is to rely on its original analysis -- and never mind that this dates from more than a decade ago, when the steel industry looked utterly different.

Wait, it gets better. The steel lobby has been running newspaper advertisements citing another Commerce finding: that lifting the tariff would allow foreign steel into the country at prices 10 to 36 percent below normal value. But that 36 percent margin is a fraud. The Commerce Department applied it to Nippon Steel because Nippon failed to cooperate with its review, not because Nippon is selling 36 percent below cost. During the previous go-round, when Nippon did cooperate, Commerce found a dumping margin of just 2.5 percent.

Why did Nippon refuse to cooperate with Commerce in the latest review? Nice question again: because Nippon had entered an alliance with one of the top producers in the United States and did not want to compete with its partner. In other words, consolidation generated the fraudulent 36 percent margin, but the margin is nonetheless used by the steel lobby to pretend that it remains as weak as in the pre-consolidation era.

Bayh is not the only senator to take dictation from the steel lobby. When the sunset hearing convenes at the International Trade Commission tomorrow, the steel lobby will present a petition from Sens. Arlen Specter and Jay Rockefeller, co-signed by perhaps 10 others. But Bayh stands out because centrists like him have traditionally been pro-trade and because his sights are set on the White House. Presidential aspirants are supposed to champion the national interest, not special interests.

smallaby@washpost.com


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