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Steel Protection and Job Dislocation
Gary Clyde Hufbauer and Ben Goodrich 1
Institute for International Economics
Washington DC
February 12, 2003
Contact: Ben Goodrich 202-328-9000 x336
Steel protection inevitably leads to worker layoffs in steel-using
industries. Some steel-users - particularly small fabricators
- are forced to shut down. Many other firms, faced with higher
steel costs and red ink, have to scale back production and discharge
employees. Still other firms decide to expand at a slower rate
than otherwise. Job losses in steel-using industries are an unintended
consequence of the Administration's steel safeguard tariffs, implemented
in March 2002. 2
Neither trade protection nor trade liberalization makes much
difference to the overall level of employment in the vast U.S.
economy. Workers dislocated in contracting firms will sooner or
later find jobs in expanding firms. The net effect of trade protection
is to lessen economic efficiency. While efficiency effects are
of little concern to laid-off workers, we oppose the steel safeguard
tariffs both because workers in steel-using firms are needlessly
discharged and because protection worsens economic performance.
The immediate question is: How many jobs have been lost so far
in the steel-using industries? The Knollenberg Resolution (H.
Con. Res. 23) represents a constructive way to arrive at a reasonable
answer 3. The Resolution directs the
International Trade Commission to conduct a study and report back
to the Administration and Congress. Indeed, the impact of protection
on employment in consuming industries should become a regular
feature of all ITC determinations in anti-dumping, countervailing
duty, and safeguard cases.
Until something like the Knollenberg Resolution leads to an ITC
study, analysts can only make educated guesses as to the magnitude
of worker layoffs. In reporting these estimates, journalists naturally
gravitate to the highest number - it makes a better story. Thus,
on February 5, 2003, Edward Alden reporting for the Financial
Times wrote:
US steel users are stepping up pressure on
President George W. Bush to eliminate tariffs on steel imports,
charging that higher steel prices have wiped out as many as
200,000 US jobs in the past year. . . The new Citac
study says about 200,000 of those losses stemmed directly from
the effects of the tariffs. 4
The CITAC (Consuming Industries Trade Action Coalition) study,
referenced in the story, actually gave a range of 50,000 to 200,000
jobs dislocated (or not created) 5
. Moreover, the CITAC study did not say that all of these
job dislocations were due to the imposition of tariffs. Rather,
the tariffs on steel, along with other factors, contributed to
an increase in domestic steel prices that resulted in fewer jobs
in steel-using industries. The 50,000 figure was not cited in
the Financial Times and is closer to the mark for the group
of industries most commonly regarded as "steel users."
The following gives a rough indication of how many of these job
dislocations can be attributed uniquely to the steel safeguards.
-
According to our estimates, after giving effect
to exclusions, the Administration's steel safeguard tariffs
increased the revenue of the steel producers by about $1 billion
in the 2nd and 3rd quarters of 2002. On an annualized basis,
the revenue increase may be $2 billion, though for reasons cited
in our Policy Brief, the revenue gains could be higher or lower.
6
-
Core steel using industries (SIC categories
34 through 37) shipped $1,733 billion in the year 2000. These
industries employed 7,237 thousand persons. Payroll per employee
was $61,000, and value added per employee was $87,000. The last
two figures imply that non-payroll value added - primarily capital
costs - was $26,000 per employee. 7
-
Higher steel costs of $2 billion, distributed
over $1,733 billion of shipments by core steel-using firms,
imply an average upward shift in their supply schedules of 0.12%.
Greatest layoffs (for a given upward shift) occur when steel-users
cannot pass higher steel costs forward in higher prices - because
steel-users face intense competition in their own product markets.
Given slack conditions in the U.S. economy, we assume this was
the case in 2002.
-
Since capital costs are a fairly large proportion
of value added, and since capital cannot be discharged the same
way workers can be laid off, many steel-using firms may absorb
higher steel costs in lower operating margins, rather than cut
production. This consideration leads us to believe that the
average elasticity of supply among steel using firms does not
exceed 3.0. 8 Assuming a supply elasticity
of 3.0, and an upward shift in the supply schedule of 0.12%,
the implied decrease in production is 0.36%.
-
A production cut of 0.36%, applied across 7,237
thousand persons, would translate into 26,000 jobs lost over
the course of 12 months in the steel-using industries specifically
due to the steel safeguards. In our Policy Brief, we may have
understated the revenue gain to steel-producing firms. If the
revenue gain is $4 billion a year rather than $2 billion, the
jobs lost in the steel-using industries could be twice as large,
say around 52,000. 9
These figures are in the range of an earlier CITAC estimate of
15,000 jobs dislocated in steel-using industries (narrowly defined)
as a result of proposed tariff remedies.10
Whether steel-using firms discharged 15,000 or 26,000 workers
or 52,000 workers on account of safeguard tariffs, a lot of unnecessary
misery was created. The misery is especially hard to justify when
there was little pickup in employment among steel-producing firms.
-
The opinions expressed are solely those of
the authors and do not necessarily represent the views of the
Board or Advisory Committee of the Institute for International
Economics, nor the views of Joseph Francois, Laura Baughman,
or CITAC, with which we are not affiliated.
-
-
A press release by the American Iron and Steel
Institute (AISI) wrongly implied that Gary Hufbauer opposes
the Knollenberg Resolution. Dan DiMicco, "AISI CHAIRMAN
PRAISES FINANCIAL TIMES ARTICLE FOR SPEAKING TRUTH TO CITAC
DECEPTION", February 10, 2003, Washington DC: American
Iron and Steel Institute.
-
Other press accounts have made similar errors
on this and other trade liberalization issues. Also, the AISI
press release accurately quotes another Financial Times article
(February 10, 2003) that incorrectly characterizes the CITAC
report as blaming all of the job losses on the steel safeguard
tariffs.
-
Joseph Francois and Laura M. Baughman, 2003,
The
Unintended Consequences of U.S. Steel Import Tariffs: A Quantification
of the Impact During 2002, study prepared for the CITAC
Foundation, Washington DC: Trade Partnership Worldwide LLC,
February. The cited figures cover hires not made, as well as
workers laid-off in the steel-using industries. The high and
low CITAC estimates correspond to their broad and narrow definitions
of steel-using industries. Our estimates correspond to a narrow
definition of steel-using industries.
-
Hufbauer and Goodrich, op. cit. The revenue
gain could be higher if our estimated coefficient is too low.
However, the annualized figures could also be lower due to the
fact that the first and fourth quarters of a year have historically
been the weakest for steel producers.
-
SIC categories 34 through 37 cover: fabricated
metal products, industrial machinery and equipment, electronic
and other electric equipment, motor vehicles and equipment,
other transportation equipment. Note that the narrow definition
of steel consuming industries used by Francois and Baughman
excludes SIC 36. The source is the Bureau of Economic Analysis
data on gross domestic product by industry and shipments by
industry ( http://www.bea.gov/bea/dn2/gpo.htm).
Employment data is taken from the Bureau of Labor Statistics
( http://www.bls.gov/ces/home.htm).
-
We are not aware of econometric estimates that
are higher than 3.0 for supply elasticities in the core steel-using
industries.
-
Responding to an inquiry from the Financial
Times to respond to the article cited February 5, 2003, one
of the authors of this statement was quoted as saying in the
Financial Times (February 10, 2003) that jobs dislocated in
the steel-using industries might be in the range of 5,000 to
10,000 thus far. A figure as low as 10,000 jobs dislocated (15,000
on an annual basis) is possible, but upon more careful review,
it is not our central estimate.
-
Joseph Francois and Laura M. Baughman, 2001,
Estimated Economic Effects
of Proposed Import Relief Remedies for Steel, study prepared
for the CITAC Foundation, Washington DC: Trade Partnership Worldwide
LLC, December. In the 2001 study, Francois and Baughman predict
that 15,300 jobs would be lost in steel consuming industries
(narrowly defined) due to an average tariff increase of 9.2
percent. If the 2003 CITAC figure of 50,000 job dislocations
due to the total increase in domestic steel prices is multiplied
by the 39 percent share of the total domestic price increase
that we attribute directly to the steel tariffs (see our Policy
Brief), we would conclude that 19,500 jobs were dislocated due
to the steel tariffs.
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