NOT ALL OF THE inflation in this country is coming in form the Persian Gulf, and not all of it is imposed by OPEC. After the recent attention to the increase in oil prices, and their contribution to the probability of a recession, it's useful to take a look at the prices of another basic commodity, steel. OPEC has held oil prices steady this year but, as you doubtless saw, intends to raise them 14.5 percent in the coming year. By an instructive concidence, 14.5 percent is just about the average increase in steel prices over the past year, and there is more to come in January.
This disproportionately fast run-up in steel prices is the result-unintentional, but real-of the Carter administration's attemptions to protect the U.S. steel industry from its competitors.The American producers had been complaining that the foreign mills were selling steel here below cost, to avoid unemployment at home. That's called dumping, and it's illegal. Just about a year ago, the Treasury Department announced its trigger price system. It calculated the real cost of making steel in the most efficient mills-Japan's-and any steel imported below that price was to trigger an immediate dumping investigation. It was an ingenious idea. Unfortunately, it did not foresee the drastic rise in the value of the Japanese yen throughout 1978.
As the yen soared, it took the trigger prices up with it. Knowing that their foreign competitors would not come into this country below the trigger price, the American companies raised their own prices right along with the triggers. The trigger system became, in a manner of speaking, price controls in reverse. Instead of a ceiling holding prices down, for the American producers it provided a floor under prices-and, as in an elevator, the floor was rising. The whole trigger experiment has become another painful example of the truth that protectionism is highly inflationary.
There's a further irony in this case. The trigger prices were imposed amidst an emotional political reaction to the closing of steel mills in Ohio's Mahoning Valley, around Youngstown. The closings were blamed on the imports, and the first reports indicated vast unemployment and unbearable hardship for whole communities. But time has passed, and it has become obvious that the social impact of the closings was greatly overestimated. The current unemployment rate there is less than one percentage point higher than the national average. While the inflationary costs of the trigger prices have swollen far beyond any expectation, the social distress caused by the shutdowns of those obsolescent mills in Ohio turns out to have been, happily, much more short-lived than anyone could have hoped a year ago.
What comes next" On Jan. 1, OPEC imposes a 5 percent increase. It's the first of our increasements scheduled for 1979. On the same day, the Treasury has announced, the steel trigger prices will go up another 7 percent under the automatic formula. The industry has already indicated that it will follow with price increases in the range of 3.5 percent. While the causes of these rises in oil and steel prices are different, the effects will be remarkably similar.
It's always more confortable to blame the nation's troubles on a villain who lives far away, speaks another language and does not vote in American elections. Simply the visual images of the OPEC ministerial meetings-the grim men in dark glasses, with their bodyguards and their jet aircraft-make it seductively easy to attribute this country's present economic troubles to an implacable and greedy foreign conspiracy. But the steel industry is composed of our friends, our neighbors and, in a word, ourselves.
A year ago it was possible to argue that the steel trigger pricing system was inflationary and wrong in principle, but perhaps temporily useful under the circumstances. Now, after a year's experience, it's clear that the trigger prices are inflationary and wrong in principle, and that's all.