Scrap steel prices are high because of a
weak dollar and strong global demand for scrap steel. Mini-steel
mills, the largest U.S. consumers of scrap, want the U.S.
Department of Commerce to limit scrap steel exports in hope of
reducing domestic prices. However, even if the export controls did
work as intended, they would harm the U.S. economy by surrendering
the market share of U.S. scrap steel producers to their foreign
competitors. Interfering with the market would also damage U.S.
credibility, reminding the world of past mistakes in U.S. steel
policy. The Bush Administration's best option is to allow prices to
rise and fall according to supply and demand.
As with any commodity traded internationally, a weaker
dollar means that the commodity costs more dollars. In the past
year, scrap steel prices have increased from about $100 per ton to
more than $300 per ton. These prices have increased along with
other metal prices in the world market. The price of nickel, for
instance, hit a 15-year high earlier this year, according to data
from the London Metal Exchange. However, as Chart 1 indicates,
scrap steel prices have generally increased in line with the price
of nickel. The price increases also coincide with the dollar's
decline, which explains most of the increases in commodity
strong global demand for scrap steel and nickel has contributed to
the high prices. China, in particular, has been buying scrap steel
and nickel for construction projects. According to The Wall Street
Journal, China is "the world's largest steel consumer, because of
increased purchases of washing machines, refrigerators and cars, as
well as the building of facilities for the 2008 Summer Olympics in
Beijing." South Korea, Canada, and Mexico are also top markets for
U.S. scrap steel exports.
At best, any restriction on exports of scrap steel will
be only partially successful. The U.S. imports and exports scrap
steel. Given the domestic demand, if exports decline, imports can
be expected to decline by a similar amount.
if the policy were partially successful, the Commerce Department
should not intervene to favor one industry over another. The Bush
Administration has already made this mistake by imposing a tariff
on steel in 2002--which it lifted in December 2003, under
duress--to protect the larger mills. The steel tariff caused
friction with trading partners and imposed higher costs on the
steel-consuming industries, undermining their competitiveness in
the world market. U.S. policies should encourage the free flow of
goods, not restrict the market.
96 percent of the world's consumers living outside of the United
States, U.S. industries benefit more, not less, from opportunities
to export. Since Congress granted trade promotion authority in
2002, the U.S. Trade Representative (USTR) has initiated a host of
free trade agreements (FTAs). President Bush has signed agreements
with Chile and Singapore, and the USTR has just negotiated FTAs
with Central American countries, Australia, and Morocco.
Implementing export controls would
contradict the U.S. stance on free trade, with one arm of the
government fighting for increased access and another arm rejecting
it. Implementing these controls would also introduce unnecessary
friction into existing relationships. Canada and Mexico consume
nearly 25 percent of U.S. scrap steel exports and are America's
largest trading partners. Total U.S. exports to Canada exceeded
$169 billion in 2003, and total exports to Mexico exceeded $97
billion. The Bush Administration should be making efforts to
improve these trading relations, not to restrict them.
United States is the world's largest producer of scrap steel.
Limiting scrap steel exports would surrender the U.S. market share
to foreign competitors, with lasting negative economic effects.
What Should Be
The Bush Administration should learn from its steel tariff
fiasco and instead take proactive measures toward free trade.
Specifically, the Administration should:
its efforts on stabilizing the dollar. Oil prices, nickel prices,
and scrap steel prices have risen as the dollar has declined. The
idea that export controls will lower prices is a fallacy.
- Continue to initiate free trade
agreements. Past trade agreements have increased the savings and
gains for the average American family by from $1,300 to
Implementing export controls will damage the USTR's
efforts to gain more access to foreign markets. The U.S. economy
would benefit more from stabilizing the dollar and negotiating more
free trade agreements.
J. Fitzgerald is a Trade Policy Analyst in the Center for
International Trade and Economics at The Heritage