The Steel Industry, Buy American and Wondering About the NYT and WSJ

So, like all of you, I now run on media overload. I am keeping up with my Twitter, my RSS feeds, blowing the headlines of most major news sites and trying to keep up with what’s going on around me. When it comes to the steel industry, I tend to pay a little more attention because my day job is impacted by the success of the industry.

So, on January 2nd when the New York Times published the article, "Steel Industry, in Slump, Looks to Federal Stimulus," naturally, I tuned in. When reading the article, I came across a paragraph that almost seemed to make it sound like the steel industry was asking for a $1 trillion bailout—as if the headline didn’t insinuate that enough. The paragraph was as follows:

"The industry itself is turning to government for orders that, until the September collapse, had come from manufacturers and builders. Its executives are waiting anxiously for details of President-elect Barack Obama’s stimulus plan, and adding their voices to pleas for a huge public investment program — up to $1 trillion over two years — intended to lift demand for steel to build highways, bridges, electric power grids, schools, hospitals, water treatment plants and rapid transit."

Sure enough, the Tweets and blogs started to buzz that the steel industry was looking for a $1 Trillion bailout. I guess you don’t know how fast a wildfire can spread until you watch it roll out live on TweetDeck!

I went to great lengths to discuss with the Tweeters and bloggers that the steel industry hadn’t asked for a single dollar. The steel industry voiced support for a movement to include a "Buy American" clause in Obama's proposed Infrastructure stimulus package that would rebuild bridges, highways and rapid transit. This move would benefit all American industry and their employees, whom the stimulus package is intended to benefit.American industry, a critical artery of the US economy, was urging Obama to include a buy American clause in his proposal. The steel industry has voiced its support for that plan and the buy American clause. The one trillion dollar figure was in no way related to any request by or on behalf of the steel industry. The number was a statement of estimation for Obama’s stimulus package by at least 5 US governors.

The trillion-dollar figure, suggested by the governors, was for the ENTIRE infrastructure package, most of which does not include steel directly or indirectly. There are portions of this package, bridges, rail systems, culverts, sewage, which could benefit the steel industry. But, it most certainly is not about the industry or for the steel industry.

Most people (Tweeple) I spoke with were surprised at the wording in the article upon learning the truth, and some even retweeted retractions. However, some folks, determined to find flaw with the industry’s approach wanted to further engage me on the economic impact and “protectionist” aspects of “Buy American.” Not a problem, we can discuss that as well.

I explained that all federal government projects used to have a buy American clause in them. This is not a new concept nor is voicing your opinion for programs that will benefit you. The lobbying profession wouldn't exist otherwise. So, in essence, the industry, at most is lobbying for a program and voicing support for aspects of that program that would benefit the industry. I would be shocked at any business-minded industry that didn't want to make sure that monies, intended to stimulate the US economy, went into the US economy. That's a logical survival strategy in these times.

But, now, today, the Wall Street Journal (WSJ) floats an editorial called “Steel's 'Buy America' Ploy.” The editorial insinuates that adding a “Buy American” clause to an AMERICAN Economic Stimulus package would “inevitably come at the expense of the nation's overall economic health.” I thought WOW, the 1.2 million people with jobs generated by the steel industry might have something that say about that. Or, hey, the American steel industry pumps $350 billion into the US economy, keeping that going is probably a great idea when you’re trying to stimulate the economy.

My read on the article is that the WSJ, and others, feel differently. I know theories on economic philosophies are like noses, everybody has one. But, for the sake of argument, I’ll address this from the perspective that I believe that the WSJ and others, who consider “buy American” protectionist and damaging.

In a utopian world, there would be no trade restrictions and all currencies would be equal. If this were the case there would be no trade borders. We would have a flowery world economy where services and goods would float seamlessly from country to country, constantly growing this utopian world economy. But, the reality is quite different.

WSJ noted that at the G-20 summit in Washington, D.C., in November, world leaders agreed to a moratorium on protectionist measures. But in that same vein, in 2007 the WTO enacted the Fair Currency Act of 2007. Yet, as we discuss this, China undervalues its currency through exchange-rate misalignment which creates an export subsidy which is prohibited through existing trade laws, including the Fair Currency Act of 2007.

According to the American Iron and Steel Institute, China’s trade practices, including the currency manipulation, creates a $50billion subsidy for China—just in the steel sector! Other practices by China include debt-to-equity swaps, inadequate enforcement of environmental and worker safety rules and large-scale subsidies in the form or preferential loans from state-owned banks and tax incentives. These practices are direct manipulation of materials markets, including steel.
And, China, as an export economy, produces 140% of its country’s consumption, including the steel it exports to US markets. According to the American Iron and Steel Institute, the largest volume of imports of finished steel products was from China. Chinese steel imports have been over 500,000 tons for each of the last three months, followed in second by Korea.

So, essentially, the WSJ and others are saying, let’s put Obama’s stimulus monies into these foreign economies? They’re saying that the US shouldn’t try to level the playing field against manipulative practices? That Obama’s stimulus dollars, intended to revitalize our economy, should not be spent with US markets, where possible? I just really don’t understand that logic. And, yet people blindly accept it because foreign lobbyists have big budgets and have the ear of key media.

But the bottom line remains. The steel industry did not create Obama's Infrastructure stimulus package. They did not ask for money from our government or any other kind of bailout. The steel industry voiced support for “Buy American” in government programs and voiced their support for Obama’s stimulus package—much in the same way that the cement industry has via cement.org (see Podcast Highlights Importance of Infrastructure Package), and the aluminum industry, who saw stocks leap on the day Obama announced his package—not to mention numerous other industries (on down to the catfishing industry), who all hope their industries will be vitalized, along with the economy, by money invested by our government.