Effect of Asian steel dumping reverberate in America

By Edward Neilan

Definitions of fair trade are among prominent casualties of prolonged Asia financial crisis and search for solutions.

TOKYO (JP): A new wake-up call has gone out to United States heavy industries, particularly steel.

The message is succinct and reminiscent of trade skirmishes of the 1970s: "Beware of Asian dumping."

The context is the prolonged Asian financial crisis. The U.S. has been able to take up much of the slack by absorbing cheapened Asian exports of everything from T-shirts to wicker baskets and not a few computer peripherals.

Take a look at your computer laptop keyboard or the housing of your new desktop model. The legends are likely to be "Assembled in Malaysia" or "Made in Indonesia."

The booming American economy can bail out Asia to a certain extent because the low-cost imports help retailers in Kansas City and Cincinnati make a nice profit.

The margins are passed on to shoppers, clerks have more take- home pay and so on.

But there's a limit to this boom cycle in the U.S. that has the consumer in California and New York keeping the rest of the world afloat.

The trouble is, nobody knows just where that limit is. Will there have to be a devaluation of the Chinese Renminbi and an end to the peg of the Hong Kong currency to the U.S. dollar for us to know the extent of the sponge-like qualities of the U.S. economy? How far can the Japanese yen weaken before disaster is at hand?

When was the last day that went by without U.S. Federal Reserve Chairman Alan Greenspan and U.S. Treasury Secretary Robert Rubin being asked when Asia's walking-wounded economies will begin to impinge on U.S. prosperity?

Those two distinguished gentlemen continue to say the U.S. economy has not yet been seriously affected by the Asian downturn.

But in the next breath they urge following International Monetary Fund (IMF) guidelines and warn countries like Japan to "not try to export their way out" of the crisis. They urge open markets and reform and more accessibility.

Our earlier predictions that Japan would find its own way out of the crisis and that Washington attempts to micromanage the process over here from over there would end in failure and frustration, still stand. The Japanese glacier has started to move in the right direction.

But the U.S. needs to keep up the pressure or gaiatsu which has been effective in the past in getting the Japanese to see the light. Or at least their version of "the light."

Despite all the theories, pledges and promises of reform, many Japanese hope to get out of this crisis just as the nation has in the past: more exports and more public works spending.

The construction industry is so closely tied to the Liberal Democratic Party that it is no wonder the new supplementary budget has a 40 percent increase in public works spending. This usually is successful because the money is visibly spent even if Japan ends up with a surplus of "paved roads to nowhere."

Most of Japan's policies are on track. But Japanese dumping of steel stands out like a sore thumb. This isn't Japan-bashing. This is pointing out an unfair policy---probably short-term--- that needs correcting.

Japanese steel exports to the United States showed a 106.8 percent increase from May 1997 through May this year with a strong reduction in imports of steel by Japan.

We're talking about steel, not about wicker baskets.

South Korea's steel exports to the U.S. jumped 65.5 percent in the same period.

The international steel market has been further disrupted by various governmental subsidies that are said to have amounted to US$100 between 1980 and 1992 alone. One of the most vivid examples was the US$6 billion granted to South Korea's on-the- ropes Hanbo Steel Co.

The American Iron and Steel Institute says Greenspan and Rubin are behind the curve, that the Asian financial crisis is already hurting the 163,000 employees of the U.S. steel industry.

The AISI, representing American steel producers, takes the position that trade should be based on market principles, trade should follow World Trade Organization (WTO) rules, all markets should be open and fair, and any unfair trade practices should be vigorously dealt with in accordance with U.S. laws and WTO rules in a prompt manner.

The situation is complicated by Russia's economic problems. Besides being an inefficient producer, Russia is the world's leading steel exporter and now has an excess capacity that previously had been used to arm the nation's military.

Now Russia faces little demand from Asia and dumps its excess product in the U.S. market. For example, the U.S. Department of Commerce, recently found that Russia was selling steel plates in the U.S. at more than US$90 per ton below cost.

China is now the world's largest steel producer and uses most of its output domestically. But this could change.

In the 1970s and 1980s, the U.S. steel industry spent billions to modernize plants that had grown obsolete. The Americans became competitive again.

It is sometimes said that one man's dumping is another man's brilliant deal. "Fair trade" sometimes differs in translation from foreign language into English and vice versa.

But the real issue is one of fairness and abiding by the rules over the long haul. Asian and Russian exporters should know that American steelmakers are getting tired of carrying a disproportionate load of adjustments to the Asian crisis.

The whole dumping issue is a sideshow--although an important one--to the greater issue of a Japanese financial comeback.

Richard Koo, chief economist at the Nomura Research Institute in Tokyo, hit the nail on the head at a luncheon speech at the Foreign Correspondents' Club of Japan this week.

Japanese, Chinese and English-speaking American citizen Koo, who grew up in San Francisco and has studied at Berkeley and Johns Hopkins and worked at the U.S. Federal Reserve, said the real problem right now is too much Japan-bashing, too much criticism of the Japanese government. He blamed the "uneducated Japanese press" for much of the problem but hinted that American and other Western correspondents weren't far behind in the brainless analysis department.

He said characterizations "that make Tokyo look hopelessly inept simply fuel pessimism over Japan. That is one of the primary reasons for the yen's recent fall."

He urged the U.S. to continue supporting Tokyo and called on American money men to remember their own up-and-down financial history.