DUMPING

In a move that was politically popular, the House voted last week to restrict steel imports. Import quotas were set for three years to permit American steel companies to recover from the severe price erosion that occurred last year, when ordinary sheet steel prices fell by more than $50 a ton to under $300 a ton. In spite of our unprecedented low unemployment and widespread economic boom, more than 10,000 American steelworkers lost their jobs last year. Pat Buchanan, who recently announced his run for the Republican presidential nomination, did so in West Virginia at Weirton Steel, the local plant that had just laid off 700 workers. Consistently loyal in his attempts to protect the American worker, Mr. Buchanan made the point that they deserve protection from the import of foreign goods sold at a price American companies cannot match. No-one can fault his compassion and concern for people who merit it, but I suggest we look carefully at the circumstances surrounding the matter.

The economic downturn in Asia and South America, and the repudiation of debt and default by Russia, combined to cause Korea, Japan, Russia, and Brazil to increase their exports of commodities to countries who would buy them. In terms of steel exports, that was simple. America's steel companies at full capacity can supply only about 75% of our needs, so steel imports are necessary. When times got tough overseas, and our currency became strong relative to the currencies of steel exporting countries, their steel became cheap. American steel producers were forced to drop their prices in the range of 15% to match competition, and some were forced eventually to lay off workers. An article I read mentioned that over the last twenty years, the inflation adjusted price of the carbon-steel products sold by America's older, blast furnace produced steel companies fell 40%. That sounds as though it was a tough business to be in.

Let me contrast what was just said with the semiconductor memory business. Thirty years ago, an American company named Intel invented the dynamic random access memory. Intel produced and sold a metal oxide semiconductor device that contained 1,024 bits of DRAM on one piece of silicon. The device was the 1103, and the price was ten bucks. A penny a bit. Rapidly improving technology, creativity, innovation, and unusually hard work by engineers and scientists for several decades, and I am speaking of 60-70 hour weeks, resulted in DRAMs that now routinely contain 16 million bits(actually more, since it is 16 million times 1,024 binary bits). The latest DRAMs contain 64 million bits on a single chip. Three years ago, 16 million bit DRAMs sold for $12-13. When the DRAM business was at its lowest point about eight months ago, these same 16 million bit DRAMs were selling for under two bucks. The price to producers had fallen to about one sixth(16%) of what it had been two years before, not 60% of what it had been twenty years before as in the case of carbon-steel products. Compared to DRAM prices at a penny a bit 30 years ago, the owner of today's personal computer gets 122,000 bits for a penny. Now that's price competition! That's also why you can buy a PC capable of surfing on the Internet for as little as $500.

Of course, Intel got out of the DRAM business decades ago to concentrate on microprocessors where it could make tons of money, and virtually all DRAM in the world is manufactured today in South Korea, Taiwan, Japan, some in Europe, and by a single United States manufacturer, Micron. We used to call it the spud RAM, since Micron's headquarters and fabrication plant were located in Boise, Idaho. Last year, Micron filed DRAM dumping(selling below manufacturing costs) charges against South Korean firms, and our government actually found in Micron's favor and imposed tariffs against some of the South Korean DRAM manufacturing firms, including Hyundai and Lucky Goldstar. The largest of them, Samsung, was awarded a very minor tariff, and the industry resumed its global philanthropy.

Why have I bothered to list this litany of unconnected and rambling prose? Well, perhaps it will be possible to make a point that needs to be understood. Our steel industry today employs 230, 000 workers, not the 600,000 it did thirty years ago. The old Bessemer steel manufacturing process is costly and inefficient, and much smaller new, electric furnace minimills that use old scrap iron have sprung up in America. They now produce 45% of American steel with 30,000 workers, while the older, larger companies make the other 55% with 105,000 workers. These minimills have been able to meet foreign prices and competition without laying off steelworkers. My question is: how much do we want to protect old, inefficient mills by the imposition of quotas, violating free-trade agreements we have signed, and risking a world trade war, to maintain jobs in Big Steel? Their technology cannot compete either with that of our own minimills or with that of foreign mills, and it doesn't make economic sense to modernize it in these existing plants.

To put things into the only perspective Wall Street realizes, the combined market cap(total dollar value) of all thirteen of the remaining "Integrated steel companies, formerly known as Big Steel" is a little over $6B. That total is only a third of the market cap of Amazon.com, the new internet book seller corporation. The 105,000 workers now working for Big Steel represent .07 of one percent of America's labor force. In the greater scheme of things, is our country really willing to institute quotas to preserve what has become a highly inefficient segment of our industrial base? If Intel had chosen to continue making its first 1,024 bit DRAM for three decades, would its workers have deserved the same protection! Intel today has 63,700 employees, more than half the workforce of Big Steel. It might have been long bankrupt and a faded memory if its scientists and engineers hadn't worked those 60-70 hour weeks for decades under the guidance of a smart, ruthless management that finally decided to stop making DRAMs and bet the farm on microprocessors.

I say this knowing full-well that the poor devil who at fifty is losing a job he's held since high school, and the West Virginia town that is virtually dependent on its Weirton Steel plant won't look on it that way. Steel imports are seen as destroying their way of life! Real life problems are seldom neat or easy, and Solomon himself would find it hard to arrive at a satisfactory answer. But the placard carried to a rally by the steel union member that read, "Free traders are traitors," doesn't cut it, either.


Sam Orr sorr@metrolink.net
World Traveler
and Philanthrope
(Location Unknown)