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. Last Updated: 07/27/2016

EDITORIAL: U.S. Dumps Unfairly on Russian Steel




"Our goal is to see these [Russian steel import] numbers get back to pre-crisis levels, not to see Russia go to their knees."


- U.S. Commerce Secretary William Daley


Apparently the U.S. government believes that the best way to keep Russia off its knees is to cut the nation's economy off at that very same section of its anatomy.


In effectively closing the American market to Russian steel, the Clinton administration conveniently forgets its free market sermons. The United States has spent years pouring U.S. aid money into so-called reform projects across the former Soviet Union. These aid programs have succeeded in little beyond the enrichment of local bureaucrats and American consultants.


Meanwhile, as Washington spent tax dollars and rhetoric boosting Potemkin "reform," Russia's steel industry was quietly carrying out real reform. Building on the admittedly massive investment of Soviet times, the nation's three leading steel enterprises - Severstal, Magnitogorsk and Novolipetsk - have undertaken modernization programs.


As a result, Russia's production costs for steel were among the lowest in the world last summer - and this was before the devaluation, when the ruble could in fact have been said to be overvalued and so an unfair drag on the ability of those firms to compete internationally. Even despite the strong ruble, and largely on the strength of its export earnings, the steel sector has risen to account for 7 percent of Russia's gross domestic product.


Now the United States is striking a potentially killer blow at Russia's steel producers. The message from America to Russia is not to restructure its industries so that they become more efficient. If it does, they will get hit by trade sanctions. The EU has already been doing exactly this to Russia for years.


Earlier this week, economists revised their predictions for the economy, saying they were expecting GDP to contract 2.5 percent this year. That was before America's hostile steel deal - which is likely to wipe off at least a percentage point from GDP, giving Russia a 3.5 percent to 4 percent contraction.


Meanwhile, both the United States and the European Union are busy subsidizing their own farmers by spending more than $1 billion on Western food aid that is frankly aimed at bailing out French and American farmers - not hungry Russians - and is likely to underprice and undercut Russia's already ailing domestic agriculture sector.


So much for helping Russia in its transition to the noble rule-based world of free trade and open markets. The intent may not be to drive Russia to its knees - but that wasn't the intent with Weimar Germany either. These things just happen.