WS>>The steel tariffs

Carl cwsiv_2nd at HOTPOP.COM
Tue Jan 11 15:05:26 MST 2005

          Washington Times

          The  steel industry has long been an unmoveable  force,
     unable to adapt to changing market conditions for a  variety
     of  reasons. But lately, the sector has started to stir.  It
     appears  American steel may not go the way of  the  railroad
     after all. Companies are taking strategic measures to become
     more  competitive  in the global marketplace  a  sign  that
     President  Bush's  decision  last year  to  erect  temporary
     tariff  barriers,  in reaction  to  worldwide  protectionist
     measures,  has given companies the ability and will  to  re-

           US  Steel  announced last week its  intention  to  buy
     National Steel. International Steel Group has made a  takeo-
     ver bid for Bethlehem Steel. Last year, Nucor Steel acquired
     Birmingham Steel, and W.L. Ross & Co. bought the  liquidated
     assets  of  LTV Corp. Over the next couple of  years,  there
     could be 10-20 mergers in the sector.

           There  are a number of factors that  have  facilitated
     this restructuring, and Mr. Bush's decision to create a more
     level playing field for American steel is one. In March, the
     United States imposed steel tariffs of up to 30 percent  for
     three  years.  Developing countries, such  as  South  Korea,
     Brazil,  India, Egypt and Mexico, were wisely exempted  from
     the tariff increase.

           Mr.  Bush's decision to erect the tariffs  was  widely
     depicted as a politically pragmatic move to shore up support
     in key steel producing states. But that characterization was
     short-sighted. U.S. steel companies were having considerable
     trouble competing with foreign companies that are  insulated
     from  market pressures through tariffs, quotas,  murky  bank
     loans  and  regulatory provisions.  These  protections  were
     causing  a glut in the market, and steel production  is  too
     capital-intensive for U.S. companies to streamline quickly.

           In  wake  of the tariff increase,  steel  prices  have
     risen  from their lows of about $220 per ton in  January  to
     just under $300 per ton. This price increase has given steel
     companies  the incentive to acquire other ailing  companies,
     while curtailing consolidation. The government's decision to
     pay  for  some steel companies' pensions  and  other  legacy
     costs  have also made these mergers possible. Labor  unions'
     recent flexibility in striking reasonable deals with manage-
     ment has also been critical.

           Still, the layoffs in the steel sector will be signif-
     icant.  And, while the health of the steel industry  depends
     on  an economic recovery, U.S. steel could be hurt if  there
     is  significant strengthening of the dollar,  since  imports
     will become cheaper.

           So,  while  it is apparent that the Bush  White  House
     made  the  right decision, the  industry  nonetheless  could
     become  dependent on tariff protection. Policymakers,  then,
     must  hold  serious deliberations before  conceding  to  the
     industry's latest demand to erect new tariffs on steel  from
     developing countries.

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