American Steel Blames China for Sagging Fortunes
American workers are earning too little, assert unions, because exploited Chinese workers undercut their bargaining power. Unemployment is near double digits because jobs have been sent to China. The traditional middle class American bargain--hard work, rewarded with security and comfort--has broken down because China has stolen our prosperity.
Shameless opportunism fuels this rhetoric, as politicians use China to divert attention from the many home-cooked causes of declining American fortune: an unwillingness to tax wealthy people or regulate an often-predatory financial system, for openers.
Not inclined to shoulder the blame for how American wages have failed to keep pace with the spiraling costs of health care, education and housing, and unwilling to champion the investments required to nurture new industries that could generate paychecks, the political class instead outsources culpability. It blames China.
Interest groups such as the textile lobby have played a crucial role in this misinformation campaign. Americans could impose crushing tariffs on Chinese apparel right now, and Beijing could sharply increase the value of its currency, and Americans would still not be making t-shirts in the Carolinas. That business is gone, long since captured by locales where labor comes cheaper. If we didn't buy such basic goods from China, we would buy them instead from India, Vietnam or Guatemala.
The Blame China story also fails to account for the reality that American firms and American workers capture much of the value of a trade relationship that seems lopsided when viewed through the narrow lens of bilateral deficits. American imports from China outstripped exports to China by $25 billion in October, according to the Commerce Department. But this deficit--the number that captures headlines--counts a laptop computer assembled in a factory in the southern Chinese boomtown of Shenzhen and shipped to a mall in Los Angeles as entirely Chinese-produced. The full value of the finished machine lands in the books as a Chinese export, without reflecting the American labor that went into designing the machine, the computer chip that runs it and the royalties that accrue to patent holders. And never mind the assorted services connected to that profit stream, from accounting to legal to marketing.
THE CASE FOR AMERICAN STEEL
At first blush, steel seems a different proposition. It is capital intensive--a process governed by expensive machines and huge volumes of raw material. The cost of labor is a much smaller piece of the product than in, say, a piece of ordinary furniture or a shirt.
Steel is a core American industry, one crucial for realizing a host of other aims, from revitalizing the Rust Belt to encouraging the development of renewable energy. Wind turbines are huge, heavy and costly to ship, making their manufacture an ideal potential source of jobs for workers close to the Great Plains (known as the Saudi Arabia of Wind). But making them requires raw materials and machine shops that can deliver the piece parts. In a word, you need a steel industry.
In the broadest sense, steel is part of what is needed to bring the American economy back from its credit-induced flight to Neverland, in which the best minds stopped focusing on producing goods and services of real value and instead churned out bogus financial innovations like credit default swaps. Steel is real. It can be folded into making things that are useful, undergirding job creation in industries that will hold up longer than the next investment frenzy.
According to the basic tenets of free trade, every country is supposed to focus on what it does best and most efficiently--pursuing its comparative advantage, in economic parlance--and then trade with other countries for the goods they are best suited to produce. This is the doctrine that has, at least rhetorically, informed successive American administrations as free trade agreements have been forged, from the creation of the North American Free Trade Agreement in the mid-1990s to the inclusion of China into the World Trade Organization.
Steel seems to challenge the supposed promises of free trade. Making steel seems very much part of the American comparative advantage, given the country's stocks of energy and its ample ports with access to the raw materials of the world. Innovation has allowed American steel-makers to churn out higher-quality products at relatively low cost. Yet the domestic industry has suffered, losing sales to overseas competitors with stronger government backing.
Since 2000, the American share of global steel production has roughly been cut in half, dropping from 12 percent to less six percent last year, according to the World Steel Association. Over the same time period, China's share of global production has tripled from 15 percent to 45 percent.
China's leaders have long designated steel a core strategic industry vital to the country's increasing industrialization, a key part of the effort to nurture a national auto industry and a host of related enterprises, from petrochemicals to glass. In addition to gaining access to state credit and land, China's largest steel companies have been guaranteed supplies of raw materials, such as iron ore and energy, at subsidized prices.
In Washington, successive presidential administrations have threatened to impose stiffened trade penalties on China absent less interventionist policies, but have--with a few notable exceptions--mostly backed down after gaining only the promise of dialogue with Beijing.
The American relationship with China is complex and multifaceted. Other considerations, such as the need to win Beijing's support at the U.N. Security Council for sanctions against North Korea or Iran, typically trump trade concerns.
The White House declined requests to discuss its approach to China's steel industry. The U.S. Trade Representative also declined requests for a briefing, releasing only a written statement.
"We are working closely with the U.S. steel industry, steel workers' representatives and other manufacturing interests in the United States to address concerns about Chinese unfair trade practices," said the statement. "China has grown to be the largest steel producing and consuming economy in the world. While growth in steel production and consumption is natural as China develops, we are concerned that the high degree of Chinese government involvement in the largely state-owned steel industry has contributed to the development of excess steel capacity in China."
The U.S. Trade Representative rejected the suggestion that it has failed to enforce trade laws, noting that it has, over the last two years alone, curbed imports of five Chinese steel products that have been dumped at below cost in the American market.