If you believe the world is flat, then you may believe Lewis W. Foy - chairman of Bethlehem Steel Corp. - when he says that the steel industry is not protectionist. Otherwise, it's a tough story to swallow.
Foy's non-protectionism includes new "Buy American" laws that the industry has helped pass in five states. In Indiana, for example, the new law gives a 15 percent price advantage to domestic steel bids over foreign steel. And Foy's type of trade includes the industry's insisted demand for an international steel agreement, which would attempt to set a floor on prices and, during periods of glut, restrict steel imports. To anyone but steel executives, that's a cartel.
But Foy and his compatriots have grown increasingly sophisticated in promoting protectionism. They have discovered a slogan that wraps protectionist policies in a respectable mantle of free enterprise and patriotism. The phrase is "fair trade" or "fair competition."
Competition and trade, as Foy put it on June 20 at a conference on trade and investment sponsored by National Journal, are "healthy . . . provided that it's fair competition that keeps us hopping and not unfair competition that knocks us flat."
The rhetoric is masterful. It appeals to American passion for "fair play" and a national predisposition to think that foreigners play dirty. Foreigners subsidize exports; foreigners "dump" imports. They victimize U.S. workers and firms. Not surprisingly, increasing numbers of unions and companies have seized upon the theme.
Unfortunately, the rights and wrongs of the world are not so simple. The United States subsidizes, too. About four-fifths of the world's commercial jet airplanes are American; Europeans have long resented this lucrative success as an unfair result of the government's massive support for the aerospace industry through defense spending. As for "dumping," much of it has been exaggerated, or contrived, by U.S. law that redefines "dumping" in a way that defies standard international practice and elementary economic sense.
But these details escape public attention, leaving the impression that "unfair" practices account for most of America's trade problems. That's simply not the case.
Take steel. The industry's enthusiasm for an international steel agreement mirrors a worldwide steel-making capacity in non-Comwell into the 1980s. Last year, steel-making capacity in non-communist countries reached 612 million metric tons of raw steel, but only 70 percent to 75 percent of that was used, according to the consulting firm Chase Econometrics Inc. And things may get worse before they get better. By 1980, according to Chase's estimate, capacity may rise faster than demand to 672 million tons.
Left to itself, this glut would produce a scramble for sales that would push prices down toward steel firm's out-of-pocket expenses. That's real competition, and also a business nightmare.
It's not hard to see why. Suppose a company's out-of-pocket expenses for an extra ton of steel - costs for extra labor, for more iron ore and coal - are $220. Suppose that firm has an additional $150 per ton in fixed expenses, such as debt repayment. In a glut situation, any price above $220 helps the firm; the price covers avoidable (out-of-pocket) costs and some unavoidable fixed costs. But the company still shows an over-all loss; bankruptcy threatens the weakest firms.
This is the dreaded prospect the industry seeks to avoid under the banner of "unfair competition" and an "international steel agreement." As outlined by Foy, an international steel agreement should explicitly prohibit any exports at less than "full costs," that is fixed plus out-of-pocket costs.
Meanwhile, the industry is relying on the Trade Act of 1974. In that law, Congress redefined "dumping" as import sales that don't cover "all costs."
Without Congress's artificial dumping definition, much - though not all - of the "dumping" (the "unfair" trade) alleged by the steel industry in the past year simply wouldn't have existed. The traditional definition of dumping is considerably narrower: a country selling its products for less abroad than at home. The purpose is to prevent countries from subsidizing export sales with high prices in a captive home market.
What outrages the steel industry is the Treasury Department's lackluster enforcement of the 1974 law. Instead, the Carter Administration has devised a "trigger price" mechanism that attempts to set minimum import prices, based on the full Japanese production costs.
The industry isn't happy. Foy says that he will give the trigger prices until the end of summer to work. If imports don't decline to about 12 percent to 14 percent of domestic consumption (against 17.5 percent in 1977), Bethlehem would file a rash of new anti-dumping complaints.
Does any of this matter? It does if you think inflation is a problem. For this artificial protection minimizes the pressure on the industry - and its unions - to break their insidious wage-price spiral. Protection makes it easier to pass through higher labor coast. In 1978, steel prices have already risen by 9.5 percent. That exceeds the 8.5 percent average for 1976 and 1977.
No one should exempt foreigners from the blame in this worldwide drift toward a cartel. The European Community not only has trigger prices, but quotas as well. Some companies - notably the British Steel Corp. - are undoubtly being kept afloat by huge government cash infusions. The European industry operates at about 70 percent of capacity against 85 percent for the American.
The political pressures - from unions and companies - for protection are awesome, perhaps irrestible. But protectionism ought to be called by its proper name. Foy's conception of open competition is as much like real competition as vodka is like water.