Bush weighing steel industry protection

When George W. Bush set out to win West Virginia during the 2000 campaign, he carefully courted two groups in particular: coal miners and steelworkers.

Today, thousands of those steelworkers will descend on Washington to demand that the president keep what they see as his promise to save their industry.

At issue is a looming March 6 deadline for President Bush to decide whether to impose high tariffs on cheap imported steel. Industry leaders claim that unfair trade practices by other countries have led to the bankruptcies of more than 30 US steel companies in the past four years.

DESPITE his free-trade beliefs, Mr. Bush last summer signaled his willingness to help the industry, ordering the International Trade Commission (ITC) to investigate the situation.

But since then, Bush has been facing powerful pressure from steel users in states such as Michigan, who say tariffs would cost more jobs in their industries than they'd save overall. Likewise, foreign allies such as Europe - on whom the president is relying for support in the war on terror - strongly oppose tariffs.

Still, thousands of angry steelworkers in swing states such as West Virginia, Ohio, and Pennsylvania could make things politically uncomfortable for Bush in 2004. As a result, many analysts are predicting that the president may try to compromise by imposing some sort of small tariff or quota system - a result likely to leave both sides dissatisfied.

"It's going to make everybody angry," says Dan Ikenson, an analyst at the Cato Institute. "The steel industry will be very upset that they're not getting the protection they claim they need to revitalize.... At the same time, it's still some sort of protectionism that's going to infuriate our European trade partners."

Few disagree that the old-lineUS steel industry is facing an unprecedented crisis. As a result of the recent wave of bankruptcies, there are fewer than 170,000 Americans working as steelworkers today - less than two-thirds of those working in the field in 1974.

THE industry, dominant during the first half of the 20th century, has been in decline since the 1960s, as other countries rebuilt their steel mills in the wake of World War II. But industry leaders trace the recent acceleration of problems to the Asian financial crisis of 1997-98, when the US saw a huge spike in cheap imports. Last fall, the ITC agreed that the US steel industry had been harmed by imports and recommended that it should receive protection in the form of temporary tariffs as high as 40 percent.

"We're on the verge of losing an industry that is the cornerstone of America," says Leo Gerard, president of the United Steelworkers of America. "If the president does nothing on March 6 - or does something inadequate - it will lead to the further meltdown of the steel industry in America."

The industry has received help from Washington before. Under President Reagan, quotas were placed on imported steel. These were lifted in 1992, as the US was moving toward formation of the World Trade Organization.

However, some analysts say the industry's current problems have less to do with imports - which actually fell by 21 percent last year - than with domestic competition from new mini-mills. Far more productive, mini-mills make steel from scrap and can operate at a third the cost and one-seventh the man-hours of old-line mills.

"The big, integrated companies are simply in long-term decline, no matter what happens," says Robert Crandall, an economic analyst at the Brookings Institution. "A new technology, and a new form of organization - the mini-mill - has taken over."

Analysts agree that the industry would be much better off if it could consolidate. Producing steel is so expensive that companies need economies of scale to make a profit. America's largest steel company, US Steel, is roughly four times smaller than its two biggest rivals - in Europe and Japan.

But this raises another major obstacle: Most of the bankrupt companies that would be ripe for acquisition have huge "legacy" costs - expensive pension and healthcare plans for their retirees. The steel industry says that unless the government steps in to cover the $12 billion cost, it will be unable to consolidate, or care for its 600,000 aging workers. But given the other constraints on the federal budget - and the many workers in other industries who've also lost their pensions, such as Enron employees - a bailout for retired steelworkers seems increasingly less likely, analysts say.