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

47. Memorandum From the President’s Assistant for Domestic Affairs and Policy (Eizenstat) and Robert Ginsburg of the Domestic Policy Staff to President Carter¹

Washington, July 30, 1977

SUBJECT

• Administration Response to Steel Price Increases

You asked me to coordinate the development of possible options for your Administration’s potential response to the steel price increases by U.S. Steel and Bethlehem Steel.² I have asked Charlie Schultze, Barry Bosworth (your Director-designate of the Council on Wage and Price Stability) and the Special Trade Representative’s office to prepare options.³

These options are as follows:

1. Tariff Reductions. Strauss and Schultze agree that this would be an inappropriate action since it would have little impact on the industry, would appear to be a punitive response, and might reduce our negotiating leverage in the Multilateral Trade Negotiations. We agree with their conclusion that this option should not be exercised.

2. Reduction of the “Buy America” Preference. We agree with Schultze and Strauss that there is little utility in attempting to reduce this preference since it has little impact on the industry, particularly the type of steel product involved here, and, likewise, would appear punitive. (Under this preference U.S. producers have a 6% price preference—and in some cases, a 12% price preference—in general government procurement, and a 50% preference in procurement by the Department of Defense.

3. Direct GSA and the Department of Defense to remind government purchasing agents of their obligation to make steel purchases from the lowest priced American suppliers. Charlie Schultze feels that this action will have little impact unless a split market price develops, and that government purchases do not constitute a large enough share of the structural steel and tin mill market to force such a result.⁴ Nevertheless, we believe that this would be an appropriate action and might have some actual impact in encouraging the development of a split market. At the very least, it would be a positive action in the right direction and certainly, in and of itself, is appropriate since it re-emphasizes an obligation which government purchasing agents should be following in any event. This action could put the steel companies which have not yet followed the lead of U.S. Steel and Bethlehem under antitrust and shareholder pressure not to do so—they will be hard put to explain why they are following the prices of the Big Two if they are foregoing increased government business in the process. If this action is to be taken, it should be done very quickly before other steel companies join U.S. Steel and Bethlehem.⁵

4. You could meet personally with the chief executive officers of U.S. Steel and Bethlehem. We agree with Charlie that this action is not warranted for the reasons he mentions.⁶

5. Antitrust Investigations. Although this is not mentioned in Charlie’s memo, you might call for an antitrust investigation of these price increases. We would not recommend this, however, because it would appear punitive and because the Justice Department is already investigating the last round of price increases in the steel industry.

6. Schultze’s Recommendations: Charlie recommends that you (a) direct the Council on Wage and Price Stability (CWPS) to initiate a study of the increases⁷ and (b) have CWPS call in the automobile manufacturers and urge them to exercise restraint in pricing on the 1978 models.⁸ For the longer term, Charlie recommends that we (i) continue our efforts in the Meany–Jones Labor-Management Committee⁹ to develop mechanisms for dealing with private wage and price decisions and (ii) be prepared to speak out publicly against egregiously inflationary price or wage actions.

We have no objection to any of these recommendations, but would add the following:

1. Direct Contact with the Steel Companies. Charlie indicates that he has talked with the chief executives of several of the steel companies which have not yet raised their prices. You might make a private, unpublicized call to one or two of these executives to indicate your personal concern and strong hope that they will not follow the U.S. Steel–Bethlehem lead.¹⁰

2. CWPS Hearings. You could direct CWPS to not only undertake a study but conduct public hearings on the price increases. We believe that both Barry Bosworth and Charlie are concerned that this would be too confrontational and with little to gain. It is, nevertheless, a viable option you might use if you wish to take high visibility action.¹¹

3. Link to Auto Manufacturers. We think that any Administration discussion with the automobile manufacturers should not be publicly linked to these steel price increases. The public might regard calling in the automobile companies as a rather strange and indirect response to price increases by steel companies.

4. Meet with Labor-Management Committee. If you want to make a strong personal response to the steel price increases, and if Charlie thinks it advisable, you could call a special meeting of the Labor-Management Committee and lay down in general terms the need for price restraint by business if we are ever to get inflation under control. You could make it clear that you expect business to raise prices less this year than last and that continued attempts to improve profit margins by raising prices more than costs (apparently the case for tin mill products) mean a never-ending cost-price spiral. Jody could brief the press afterward on this meeting.

5. Forestalling Future Steel Price Increases. If it appears that these price increases will stick, one of your principal economic advisers should quietly tell U.S. Steel and Bethlehem that we expect that this will be the last increase for some time to come (at least January 1, 1978) and that any further increases may well cause a major confrontation with the Administration. This could at least, in a non-public way, help to forestall further steel price increases for some time.

1. Source: Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel (O/A 6343). No classification marking. Carter initialed “C” at the top of the page.
2. On July 21, U.S. Steel announced an increase in the price of its structural steel by 6 percent and its tin mill products by 7 percent. The following day, Bethlehem Steel announced that it too would raise structural steel prices by 6 percent and tin mill product prices by 7 percent. (Gene Smith, “U.S. Steel Planning Increases in Prices to Ease Labor Costs,” The New York Times, July 22, 1977, p. D1; Gene Smith, “Bethlehem Follows U.S. Steel in Move to Increase Prices,” The New York Times, July 23, 1977, p. 25)
3. Schultze offered his recommendations in a July 27 memorandum to Carter. (Carter Library, Staff Office Files, Domestic Policy Staff, Eizenstat Files, Box 284, Steel (O/A 6343)) Strauss discussed the role of trade policy in a July 25 memorandum to Carter. (Carter Library, Staff Office Files, Council of Economic Advisers, Charles L. Schultze Subject Files, Box 81, [Steel] [7]) Bosworth’s recommendations were not found.
4. In discussing this option in his July 27 memorandum to Carter (see footnote 3 above), Schultze noted: “This requirement is supposed to be followed in any case. The action will have little impact unless a split market price develops for a particular steel product. Emphasis on the requirement would reinforce our earlier statements, however.”
5. Carter wrote “ok—Proceed” in the margin adjacent to this paragraph.
6. In discussing this option in his July 27 memorandum to Carter (see footnote 3 above), Schultze noted: “The steel companies have acted already, and they are unlikely to respond positively to requests to rescind or reduce their increases. A direct request from you would create an atmosphere of confrontation that would leave the companies no graceful way to back down. Even if you did not directly urge a rollback, the press would interpret the meeting as though it were pressure for a rollback, and play up the confrontation.” Carter wrote “no” in the margin adjacent to this section of Schultze’s memorandum.
7. In discussing this option in his July 27 memorandum to Carter (see footnote 3 above), Schultze noted that “CWPS could, using existing authority, obtain data from the steel companies on production costs, order backlogs and available capacity in specific product lines. CWPS could supply you with a report on the conditions in the industry that could provide the basis for further comments about the industry’s pricing policies. (If you approve, we will immediately draft a directive to CWPS from you.)” Carter wrote “ok” in the margin adjacent to this section of Schultze’s memorandum. No directive from Carter to CWPS was found.
8. In discussing this option in his July 27 memorandum to Carter (see footnote 3 above), Schultze suggested that meetings with the automobile industry “could be initiated by Barry Bosworth at CWPS. If necessary, the meetings could later be escalated to higher levels. Auto prices are the next big area of action, and, in any event we should do this.” Carter wrote “ok for Bosworth, no for me” in the margin adjacent to this section of Schultze’s memorandum.
9. On April 15, Carter proposed a series of measures to fight inflation, including the encouragement of labor-management cooperation; this effort was to be led by AFL–CIO President George Meany and General Electric Company Chairman Reginald Jones. For the text of Carter’s statement on his anti-inflation program, see Public Papers of the Presidents of the United States: Jimmy Carter, 1977, Book I, pp. 622–629.
10. Carter wrote “no” in the margin adjacent to this recommendation.
11. Carter wrote “What are likely results?” in the margin adjacent to this recommendation.