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. Last Updated: 07/27/2016

Steel Is Just a Symptom

Even before the latest wave of layoffs and bankruptcies, employment in the U.S. steel industry was hovering around 140,000. This was well below the roughly 500,000 in the early 1970s or the 650,000 in 1953, the peak job year after World War II. For all the talk of the industry's impending "restructuring," that had already occurred in the late 1970s and early 1980s, when there were massive shutdowns of old plants through the Rust Belt of Pennsylvania, Ohio and Indiana. Wal Mart now employs far more people in the United States (about 1 million) than the entire steel industry.

These numbers demonstrate, if nothing else, that the industry's political power dwarfs its economic weight. It is true (as countless critics have said) that U.S. President George W. Bush's decision to slap 30 percent tariffs on many steel imports is blatantly political. Does anyone imagine he would have acted if steelworkers and the industry's estimated 600,000 retirees lived in the Democratic bastions of Massachusetts and Maryland? Instead, the industry is luckily concentrated in battleground states that figure heavily in the control of Congress and the White House. In 2000, Al Gore won Pennsylvania 51 percent to 46 percent, while Bush won Ohio 50 percent to 46 percent.

In 2000, raw steel production in the United States was virtually identical to what it was in 1980, about 112 million tons. Except in periods of high demand and high prices, the older mills will be marginally profitable or unprofitable. Even without imports, many will slowly shut down and give way to more efficient mini-mills. At most, tariffs can postpone closures. Aside from politics, protectionism seems pointless.

But what critics overlook is this: Pressures for tariffs reflect the United States' special role in the global economy. The United States is the world's major engine of economic expansion. The dollar is the main currency used for international trade and investment. Its exchange rate is "strong" in comparison with other currencies, making imports to the United States cheaper and U.S. exports more expensive. In good times, this is a boon to Americans. Cheap imports raise living standards, check inflation and keep U.S. companies competitive -- all without hurting U.S. producers too much. Demand is ample for everyone.

In bad times, however, the logic reverses. The combination of a weak economy and a strong dollar can be devastating. Demand and prices for traded goods drop simultaneously, accelerating bankruptcies and layoffs. Gradual economic decline becomes a collapse. Since 1998, more than two dozen steel companies have gone bankrupt. It wasn't just steel, of course. Farm prices have suffered even larger declines. In 1996, farmers received an average of $4.30 for a bushel of wheat; the price today is well below $3.

The root causes of protectionist pressures lie in the United States' lopsided dominance of the world economy -- or, to put it differently, in the weaknesses of the European and Japanese economies and their currencies. If those economies had been stronger, the U.S. slump would not have so depressed other countries or commodity prices. But Japan is moribund and Europe's growth depends heavily on the United States'. Without a boost from the U.S. economy, global trade has stagnated.

When introduced in 1999, the euro was worth $1.17. This meant that a European steel company with 100 euros of costs would have to charge $117 to cover its costs. But since then, the euro has depreciated about 25 percent. It's worth only 88 cents. The same company, to cover its 100 euros of costs, now needs to charge only $88. U.S. manufacturers and farmers have suffered a huge competitive blow. The yen, too, has depreciated sharply.

Thus, the larger problem is a world overdependent on the United States. Unless U.S. economic growth explodes, it will disappoint. There are massive potential instabilities and stresses. Protectionism in steel is but one symptom. What's needed are stronger European and Japanese economies and currencies to help carry the load. As yet, they are nowhere in sight.

Robert J. Samuelson is a columnist for The Washington Post, where this comment appeared.