You might have noticed that there’s something of a campaign going on by the US steel X -2.89% unions and industry to protest against imports from other countries. The argument is that Johnny Foreigner is making steel too cheaply, possibly aided by foreign government subsidies, and then selling it at low prices in the US. There are a number of problems with this idea, one of which I dealt with yesterday. That point being that if we get cheaper steel then this makes us all richer. Because we’re getting cheaper steel. We get to build our pipelines or whatever else we might be doing with steel for less money. So, we can have a pipeline and also something else and having two things instead of one for the same money is a definition of being made richer.

US Steel Imports

However, there’s another problem with some of the propaganda that is being spread around over this issue. The Economic Policy Institute* claims that up to half a million jobs could be at risk as a result of these cheap imports:

“Surging imports of unfairly traded steel are threatening U.S. steel production, which supports more than a half million U.S. jobs across every state of the nation. The import surge has depressed domestic steel production and revenues, leading to sharp declines in net income in the U.S. steel industry over the past two years (2012–2013), layoffs for thousands of workers, and reduced wages for many more.”

There’s a distinct problem with this estimate of 500,000 jobs at risk. Which is that the entire US steel industry doesn’t have that many jobs in it. In fact, there appear to be some 130,000 to 153,000 jobs in total in that entire US steel industry.

“Based on 2013 data, the U.S. steel industry operates over 100 facilities employing 152,900 people and producing steel shipments valued at 75 billion dollars.”

You have to perform some very heroic calculations to make imports destroy more jobs than there actually are in the industry enjoying said imports. What is being done here is to assume that each job in steel supports many other jobs outside the steel industry. Steel workers buy restaurant meals so therefore waiters are employed because the steel industry exists and so on. But this isn’t a valid method of estimating job losses from imports. Because the money saved by buying cheaper steel will also be spent into the general economy thus creating jobs there. For example, cheaper steel to make pipelines from will lead to more pipelines being laid: the people who install pipelines will eat in restaurants and thus waiters will be employed. Or if cheaper steel just leads to cheaper pipelines, then the money that would have been spent on them will perhaps go to investors in higher profits: and they will eat out and employ waiters.

Another way of putting this in more formal terms is that trade doesn’t affect the general level of employment in a country. That’s determined instead by the level of aggregate demand in the economy. Trade can affect which sector the jobs are in but not the total number of jobs. Thus, if looking at the jobs impact of any particular trade action we should only look at the jobs directly affected, not the multiplier to the general economy. Trade might displace jobs but not destroy them.

There’s also a certain amount of hysteria going on with these numbers as well. The concern centres on a certain type of pipeline steel from South Korea:

“What’s at Stake?

At a time of high demand for OCTG, the U.S. industry is being squeezed by dumped imports from South Korea and other nations. Failing to fully enforce our trade laws puts American jobs on the line and risks outsourcing the benefits of America’s energy boom. Thousands of workers will be left vulnerable.

OCTG imports doubled from 850,000 tons in 2010 to 1.8 million tons in 2012 ­ a 113% increase.

Dumped OCTG imports from South Korea accounted for half of that amount.”

1.8 million tonnes of steel? In an industry that produces 90 to 100 million tonnes a year? We’re really stretching if we’re going to say that imports rising from 0.85% to 1.8 % of the market are going to destroy more jobs than exist in the industry in total.

Finally, there seems to be a misunderstanding about how prices are reached in a free market:

Finally, there seems to be a misunderstanding about how prices are reached in a free market:

“These foreign steel pipes are “dumped,” priced below fair value and in deceptive ways are designed to circumvent international trade laws.”

In a market based system “fair value” is whatever someone is prepared to pay and whatever someone is prepared to sell for. There is no other method of calculation possible: the market price is the fair price.

Source: http://www.forbes.com/