This medium-sized city (1977 population: 73,000) doesn't fit the basic stereotype of a steel town as a dirty, cheerless and semidepressed place. Mostly it's just the opposite: clean, prosperous and pleasant. The downtown has the fresh (if slightly artificial) charm of tasteful restoration; some of the old homes sell for more than $100,000. A modern civic plaza and city hall overlook the Lehigh River, which splits the city. The steel plant sits on the opposite bank, snug along the river. If it isn't invisible, neither does it overwhelm. bAnd it seems to belch little more than white steam.

A Washington reporter always benefits from travel. It's an antidote to the capital's parochialism. Coming here gives him a feel for steel. Inside the plant, he is reminded that making steel is a fiery, noisy miracle: the transformation of piles of earth -- iron ore, coal and limestone -- into the building blocks of modern industry.

It is an impressive enterprise but, as the suspicious reader may have deduced, the trip here is not entirely spontaneous. It is undertaken at the urging (though not the expense) of Bethlehem Steel Corp., producer of about one-eight of America's steel and the industry's second-largest firm. The invitation's purpose is frank; to bend the ear of a reporter who has written critically of the steel industry and its union. The idea is that a bit of exposure to the industry's realities will make him better informed and more agreeable.

Well, he is better informed, but not much more agreeable. Everyone is friendly and -- within bounds -- candid. He enjoys the conversation and sympathizes with some of the company's problems. But the impressions that he carries away aren't quite the ones he suspects were intended.

He sees similarities between what has happened to steel nationally and locally: It is becoming less important, more accomodating to outside pressures and more polished in the pursuit of its own interests.

In the past two decades, the local economic base here has become significantly more diversified. The steel plant remains the largest sources of employment, but an industrial park across from the new airport has more than 50 tennants and 4,500 workers, about one-third the steel plant's payroll. Mack Trucks Inc. always has its headquarters in neighboring Allentown, but Western Electric Co. Inc. now has a large plant nearby.

Steel's cultural dominance has diminished, too. John Strohmeyer, the Pulitzer Prize-winning editor of The Globe Times, the city's daily, recalls that when he took over in 1956, "It was really a steel town . . . with all the worst connotations."

Eugene G. Grace, who had been Bethlehem Steel's president since 1916 and its chairman since 1945, still "reigned and ordained that complete loyalites belonged to the company." Employment practices were "lily-white," and the steel company dominated the city government -- mostly, according to Strohmeyer, by covert financial and management assistance to city departments that managed to bungle their own affairs. An executive who arrived in the 1950s says that he found is colleagues then "narrow" and "limited."

The drift of casual conversation convinced the reporter that corporate loyalties -- though still real for many executives -- are now far less intense now. The company's civic presence remains large, but it is out in the open and, in Strohmeyer's judgement, more "positive." In the early 1960s, he had criticized the company for racial discrimination in its hiring practices; a decade later, he was charging the local police with brutality in its treatment of the city's fastgrowing Hispanic population -- attracted

All this deepens the reporter's understanding of the frustration felt by many steel executives -- indeed, many executives everywhere -- and their antipathy toward the press. They see themselves as having become more broad-minded and responsive to a "public interest" that reaches beyond immediate profit. But they don't see themselves getting much credit for the change. Instead they believe they are the objects of an unremitting and irrational scorn. And they don't believe the press and public understand the practical, everyday problems of making an enterprise run and keeping it vittal.

Candor compels a vistor to meet them half way. Reporters don't score many points with editors (or with their peers) for thinking of business in any way but critically. So they don't.

But only half way. The steel executives were asked what smaller cars would mean for steel demand, they brushed the question aside. But a report from the General Accounting Office says that auto demand for steel -- about one-fifth of total demand -- could decline by half in the 1980s. More important, steel is now a global commodity. Although the American industry remains among the most productive, the differences aren't always enough to offset higher U.S. labor costs.

The steel executives here admit they have been caught in a disastrous wage-price spiral. The current three-year "no-strike agreement with the United Steelworkers of America pushed up labor costs 38 percent; the next contract (which begins in August) probably will result in a similar increase. But the steel executives argue that government encouraged the spiral by decades of efforts the minimize strikes, a policy that (they say) altered the balance of power between labor and management.

For cities like Bethlehem, this cuts both ways. High wages foster local prosperity -- so long as the mill is working. But they also undermine the industry's competitiveness, increasing pressures for shutdowns or public subsidies.

The industry and the union see restrictions on "unfair" imports as the remedy. But this is not the panacea that it seems. The law defining "unfair" blatantly discriminates against imports, and protectionist plans are inherently risky. They inspire inefficiency, and, sooner or later, the public may tire of paying the costs.

Even the industry's most pessimistic projections show 1988 steel production at 85 percent of the 1978 level. American steel isn't about to vanish, but its squeeze is real. The message from Bethlehem is that by being less dependent on steel, the city may be better able to stand the squeeze.