The CITAC Study: Flawed Model, Biased Conclusions
by Andrew G. Sharkey, III
President and CEO, American Iron and Steel Institute (AISI)Rebuttal to a "report" put out by the Consuming Industries Trade Action Coalition (CITAC). It was published in American Metal Market on Monday, May 14. The recent study on the cost of steel import quotas released by the Consuming Industries Trade Action Coalition (CITAC) and its chief sponsor, the American Institute for International Steel (AIIS) -- appears to use a flawed economic model similar to the one used in the bogus "cost of protection" report issued last year. That one was bought and paid for by Big Steel in Japan. At its core, the CITAC study, like its predecessor, is a political defense of dumped, subsidized and disruptive steel imports.
We don't know precisely what assumptions, functional relationships and data were key to the study's flawed conclusions -- because the authors chose not to provide sufficient data and results to enable a thorough analysis. Still, it doesn't take a rocket scientist to figure out that the politics of dumping are at work in this study. Here's why. While CITAC doesn't tell us what their estimate is for the presumed steel price increase due to the quota, it says the cost per job saved from a quota on finished steel imports would be $315,000-$562,000. This is ridiculous on its face. The last three years have been the three highest steel import years in history, and much of this tonnage was dumped, subsidized or both. While CITAC members have received significant short-term benefits from record low steel prices, the U.S. steel industry during this period has suffered unprecedented market instability and serious injury, including 18 bankruptcies and the loss of over 23,000 good steelworker jobs. Thus, unless CITAC model is assuming that the quota will result in a far greater steel price increase than the very large steel price decline in recent years, it is difficult to see how CITAC members can complain about being injured from a policy to restore stability to the U.S. steel market. In addition, the study has many other implausible results. For example:
It grossly understates the quota's benefit to the U.S. steel industry -- saying it would total only $12 million when, based on the study's own data, it is reasonable to conclude that steel workers would benefit by over $300 million, domestic steel shipments would increase by over 4 million tons and there would be at least $300 million in added profitability for domestic mills. It claims this is a '"state-of-the-art model, when there is no reason to believe that any model is so accurate that it can measure with precision such extremely small effects, e.g., the estimated 9,515 jobs lost in steel-consuming industries account for only 0.1 percent of the current total number of workers in these industries. It says steel "represents a significant part" of the total cost of making products in steel-consuming industries, when the Commerce Department's input-output data tell a very different story, e.g., that steel's share of total output is only 0.8 percent in construction, 3.4 percent in automotive and 6.8 percent in appliances. It grossly understates the extent to which domestic steel can be substituted for imported steel, when it claims there are "significant differences" in quality between domestic and imported steel and suggests there are many steel products that domestic producers cannot make, because this is simply not the case. It does not take into account the short supply waiver language in the subject legislation, which would permit increased imports in certain situations.
In sum, this is a highly flawed study, with biased conclusions, based on a political agenda that defends dumped, subsidized and disruptive steel imports. These are the facts:
CITAC and its chief sponsor, AIIS, say the crisis that has engulfed the U.S. steel industry is home-grown and that imports and long-term structural problems in the steel sector offshore have nothing at all to do with current difficulties. But the fact is that the root cause of this crisis is global excess steel capacity and market-distorting practices, and these lie outside the NAFTA region. CITAC leaders talk about U.S. manufacturers being driven abroad due to high steel prices. But the fact is that they have yet to provide a single example. CITAC's hired guns predict huge losses to U.S. steel users and the U.S. economy from effective trade action -- whether to provide a sustained period of steel import stability or to counter dumped and subsidized imports. But the fact is that neither CITAC nor any of its "studies" ever looks at the accumulated cost to the U.S. steel industry and economy from unfair and disruptive steel imports -- or the long-term benefits to U.S. steel consumers and our economy from having a viable, competitive domestic steel supplier base. CITAC suggests that the U.S. steel industry is hopelessly divided on the causes of and solutions to the steel crisis, so as to drive its political agenda to deny steel trade relief. But the fact is that, notwithstanding some differences, there is actually unprecedented unity in the U.S. steel industry on two key points: (1) we need a sustained period of steel import stability in the United States; and (2) we need to use this period to address long-term structural problems -- in particular, global excess steel capacity and market-distorting practices. Worst of all, CITAC uses figures such as "50-1" or (a few months ago, "40-1") in discussing jobs in steel-consuming industries versus jobs in steel in order to mislead people into thinking that the steel trade issue is necessarily a "zero-sum game," i.e., steel wins-customers lose. But the fact is that U.S. steel users are the winners long-term if the United States has an effective policy to counter unfairly traded and disruptive steel imports and thus preserve a healthy domestic steel supplier base.
The flawed CITAC study serves a political agenda that is contrary to the long-term interest of steel users and the U.S. economy. It should not be treated seriously by policy makers.
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