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Friday, January 22, 1999 Published at 15:25 GMT

Business: The Economy

Steel wars

Forget bananas, the next trade war will not be transatlantic but global and as the BBC's Rodney Smith explains Europe's steel industry will be in the thick of it.

[ image: Rodney Smith]
Rodney Smith
There's an economic storm coming, a trade war, and Europe is right in its path.

It's about steel. Easy to manufacture, give or take a few million dollars' worth of investment, popular with governments, because it's a big employer and simple and always in demand.

The devalued Asian currencies of the past year and a half have flooded world markets with cheap steel.

Steel buyers - builders, construction engineers, car manufacturers, shipbuilders, there are hundreds of them - go for the cheapest they can get. That in a nutshell is why Japanese steel exports to the United States surged an astonishing 400% last year.

This and large exports to the US of steel from other countries like Korea and Russia have caused outcry in America. Steel manufacturers there have been reduced to closing and mothballing plants and say 10,000 jobs have gone already.

They are seeking sanctions against the Japanese in particular, and have taken their case to the government in Washington and the World Trade Organisation. But while others like the Koreans have voluntarily cut their own output or have said that they will, the Japanese have stood firm.

[ image: Europe's steel industry could soon be in the eye of the storm]
Europe's steel industry could soon be in the eye of the storm
Exhibiting the same world statesmanship as they did when failing to confront the crisis in the Far East, their domestic banking crisis and the recent explosion of the yen, the Japanese have adamantly refused to bend to American appeals to ease their floods of steel.

They say, throwing responsibility back on US capitalism, that it's America's problem; the inability of US steel makers to compete internationally and a political system which allows them to petition the government for protection.

In fact, Japan's attitude is anything but conciliatory, in spite of the astonishing level of Japanese steel penetration into the US market. The thought of Japan accepting a 400% increase in steel imports from the US or anywhere else is laughable.

Neither is there much credibility in the Japanese inference that US steel manufacturers are still bolted down to rusting plants, equipment and practice. The ability of the steel industry to adjust swiftly to changing demand for types of steel (chromium steel is displacing carbon steel at the rate of about 4% a year) owes a great deal to the development of US-inspired mini-mills.

[ image: Subsidies for Europe's steel makers annoy US competitors]
Subsidies for Europe's steel makers annoy US competitors
Washington may be reluctant to pick too much of a fight with Japan, even at the expense of American jobs, while Japan so clearly still has a recession problem.

Washington also probably quietly shares the fervent if rarely expressed wish of many Japanese at home and abroad that Japan's ageing ruling hierarchy must eventually give way to a more internationally sensitive, forward-looking administration.

And the Europe dimension?

While Tokyo and Washington snipe at one another, they are both taking side shots at the European Union.

The EU still subsidises more than its share of steel manufacturing. The money is generally shared between Italy, France and Germany. The last upturn in the steel industry cycle came just in time (like the one before it, and the one before that) to curb the final acts of rationalisation in this difficult industry.

So Europe stands rather like a half-built house, bits hanging off and in danger of being blown away in a bad wind.

It makes Europe a particular target for criticism by the US in its present mood. Already, Washington accuses the EU of not taking its fair share of Japan's steel output. Europeans may ask why they should. The answer is of course that that is the way every government massages these things when they can.

Everyone except the Japanese.

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