US Steel, the world's first billion dollar company, is being sold for scrap. And Washington made it happen.

Originally a merger of Carnegie Steel and a myriad of smaller companies and J.P. Morgan's favorite stepchild, U.S. Steel had been losing market share for decades. It is now being taken over by foreign rivals, the result of a slow squeeze by the government.

It was once the crown jewel of American manufacturing, and its products formed the backbone of the “arsenal of democracy.” Literally, U.S. Steel manufactured the keels of major battleships and aircraft carriers in World War II.

Ironically, these ships left to fight Japan, but 80 years later, Nippon Steel is now purchasing the government-destroyed carcass of US Steel. (Related: EJ Antoni and Peter Centonzi: This could be the final nail in Dollar's coffin)

But the problem is much deeper than a single U.S. manufacturer. For decades, blue-collar jobs have been disappearing across America as cheaper goods flow in from around the world.

At first glance, it makes no sense that American manufacturing is not internationally competitive. An American worker has three times as much capital at his disposal as a Chinese worker.

America's workforce is so much more productive than its less-skilled foreign competitors that even the minimum wage paid in places like rural China can't make up the difference.

Imagine a foreign worker who has to drill holes in steel plates in a manufacturing plant. With no power tools, he drilled the hole in about a minute using a hand drill. But he can't do it all day. After an hour, his arms get tired and he slows down. Over time, his productivity decreases even more.

Conversely, an American worker stacks a dozen sheets of steel on an electric drill press, turns it on, and drills 12 perfect holes. After all, his output exceeds his unskilled opponents by an order of magnitude, and his quality is also excellent.

What canceled out the incredible advantage of capital and put American manufacturers at a disadvantage where they could no longer compete? In one word: regulation.

The federal government has imposed tens of thousands of regulations on our once-great manufacturing industry, nearly shutting down production and racking up billions of dollars a year in compliance costs.

“Green” energy mandates, diversity-based quotas, and anti-competitive rules that large unions and corporations alike lobby to lock out both nonunion workers and small businesses are making American manufacturing dysfunctional. It is in a state of failure.

A recent study by the National Association of Manufacturers estimates that federal regulations alone cost large manufacturers with 100 or more employees an average of $24,800 per employee per year. That's about half of a typical blue-collar employee's salary. In other words, these onerous regulations increase the cost of hiring American workers by 50%.

It's even worse for small businesses with fewer than 50 employees, with regulations costing them a staggering $50,100 per year per employee. In that case, the employer's labor costs would now be approximately double.

In short, Washington has put a price on American workers.

Regulation more than compensates for the incredible head start American workers have had in capital and productivity. These costly regulations make operating a factory in America a losing proposition. Often the only way to succeed in the face of such regulation is to join the lobbyist heist and grab taxpayer money.

In fact, one of the first manufacturing regulations, the Meat Inspection Act of 1906, was lobbied especially by large meat packers to cartelize the industry and shut out independent butchers. Such a move by American manufacturers will increase their market share in the short term, but it will collapse in the long term.

After all, if a regulation increases costs by 25% for small businesses but only 5% for large businesses, small businesses will go out of business and large businesses will control the entire market.

The problem is that foreign competitors will emerge. In the absence of similar regulatory burdens, a foreign company will only undercut the domestic manufacturer with his 5% of regulatory costs, and the path to oblivion will be short.

Before today's bloated regulatory state, U.S. manufacturers frequently cut costs to compete with each other and with foreign rivals, but there was still a level playing field. It was making a profit.

Kerosene has become cheaper every decade that standard oil has existed. Henry Ford repeatedly lowered the price of the Model T. Baldwin Locomotive Works continually evolved better engine designs, but still managed to lower costs. And J.P. Morgan relentlessly worked to improve efficiency within U.S. Steel in order to lower the price of the final product.

Ultimately, the loss of American manufacturing is a self-inflicted wound that will not heal until the regulatory knife is removed from its back. The problem lies in Washington, not abroad.

EJ Antoni is a fiscal economist and Peter St. Onge is a Mark A. Kolokotrones Fellow in Economic Freedom at the Heritage Foundation.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller News Foundation.

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