Foreign Relations of the United States, 1977–1980, Volume III, Foreign Economic Policy

30. Memorandum From the President’s Assistant for Domestic Affairs and Policy (Eizenstat) to President Carter¹

Washington, May 14, 1977

SUBJECT

• Response to your request for possible Presidential action to show concern over recent steel price hikes

At your request I have pulled together potential steps which you might take to put pressure on the domestic steel industry to reduce their recent price hikes.² Memoranda for you, done at my request, are attached from Chairman Schultze (Tab A) and Ambassador Strauss (Tab B).³ Both of these memoranda make the following points:

—While your leverage as President on the steel industry (other than through jawboning) is limited in the international trade area, there are some actions which could be taken.

1) Tariff Reductions under The Trade Act must be negotiated. Tariffs for major steel products are already very low and are not presently an effective barrier against imports even at this time. The United States would receive little practical benefit in return.⁴ Nevertheless, an indication of the fact you are looking into this area might send out some chilling signals to the steel industry.

2) Quotas on specialty steel also have little impact on U.S. steel imports since such quotas cover only 2 percent of the total. In order to further reduce these quotas, you must ask for advice from the International Trade Commission. The EPG will recommend to you in a memorandum you will shortly receive, that you ask the ITC to formally review the import quotas.⁵ This will send a clear signal (one, I might add, which both labor and industry will vigorously oppose), but the impact on the major steel companies who have recently raised their prices will be minimal since specialty steel accounts for such a small percentage of total industry shipments and revenues and is produced by such a relatively small and specialized group of firms. This would, therefore, have little impact on the larger steel companies such as U.S. Steel and Republic Steel Company, which recently raised their prices. It might have an impact on the specialty steel producers who have announced price increases of 8 percent on their production since May 2.⁶

3) You could indicate that you are considering reducing the “Buy America” preference which U.S. steel producers have in light of their price increases. However, government purchases of steel mill products are not a large portion of the U.S. steel market and, as Ambassador Strauss points out, such reductions might reduce our negotiating leverage in the multilateral trade negotiations as well as with Congress.

4) One other potential action not mentioned in either memorandum is with respect to the 301 Case that the steel industry is presently arguing before the Special Trade Representative.⁷ Their argument is that the steel agreement between Japan and the European community is hurting the U.S. industry by directing Japanese steel exports from the European community to the United States and that the U.S. should therefore retaliate. There is some question as to whether the domestic industry has proven its case. You might consider an indication that the STR does not at this time look favorably on the industry’s petition and that recent inflationary price rises indicate that the industry apparently is not really feeling the impact of increased Japanese competition.

I would recommend that before you consider any of the potential steps outlined herein and in the memoranda, that you have a meeting with Secretary Blumenthal, Ambassador Strauss, Chairman Schultze and Director Lance. In addition, the Congressional leadership should be informed before any such steps are taken.⁸

You should be certain that the 6 percent increase is not fully justified. According to Mr. Schultze’s memorandum, an analysis by the Council on Wage and Price Stability indicates cost increases in recent years have not been recovered by price increases and that a 6 percent or higher price rise would be necessary to recover those costs. Of course, the sacrifices which must be made in the fight against inflation must begin somewhere, and price increases such as this in the steel industry will have a ripple effect throughout the economy.

1. Source: Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel/Chrome (CF, O/A 24) (4). No classification marking. A stamped notation reads: “The President has seen.” Carter initialed “C” at the top of the page and wrote “Stu.”
2. On May 6, the Republic Steel Corporation and the Youngstown Sheet and Tube Company announced that they would raise their steel prices by 6.8 percent to 8.8 percent. On May 9, the United States Steel Corporation, the largest steel producer in the United States, announced that it would raise selected prices by an average of 6 percent. The following day, the National Steel Corporation also announced a 6 percent average price increase. On May 10 and 11, the Youngstown Sheet and Tube Company and the Republic Steel Corporation, respectively, announced that they would reduce their price increases to the 6 percent range. On May 12, three more companies, including the Bethlehem Steel Corporation, announced that they too would raise selected steel prices by 6 percent. (Gene Smith, “Two Steel Companies Lift Prices Sharply; U.S. Agency Critical,” The New York Times, May 7, 1977, p. 1; Gene Smith, “U.S. Steel to Lift Prices an Average 6%,” The New York Times, May 10, 1977, p. 41; Gene Smith, “National’s 6% Price Increase Follows U.S. Steel Move,” The New York Times, May 11, 1977, p. D1; Gene Smith, “6% Steel Price Rise Prevailing; ‘Voluntary’ Move Hailed by U.S.,” The New York Times, May 12, 1977, p. 1; and “Bethlehem and 2 Others Join Rise In Steel Prices by 6% for June 19,” The New York Times, May 13, 1977, p. D5)
3. Both tabs are attached but not printed. Tab A is a May 12 memorandum from Schultze to Carter. Tab B is a May 13 memorandum from Strauss to Carter.
4. In his May 13 memorandum to Carter, attached at Tab B, Strauss asserted that while it would “be relatively easy to negotiate” a trade agreement involving the reduction of U.S. steel tariffs, “unless there were reciprocal benefits to the United States we would be under serious criticism by the Congress for giving up negotiating leverage in the multilateral trade negotiations.”
5. See Document 29.
6. Carter highlighted the final three lines of this paragraph, beginning with “raised their prices” to the end of the paragraph. He also wrote “Sounds best” in the margin adjacent to this paragraph.
7. Reference is to Section 301 of the 1974 Trade Act; see footnote 3, Document 4.
8. Carter wrote “I agree” in the margin adjacent to this paragraph.