Free traders are up in arms following the decision of the United States to impose import tariffs to protect its sickly steel industry. They point to the retaliatory import restrictions imposed by the European Union as a sign that the tariffs risk sparking a trade war. The hardest-hit nations, they suggest, will inevitably be developing ones. And they argue that tariffs remove the incentive for uncompetitive operators to reform, thus prolonging rather than solving the industry’s problems.

These arguments are sound, but there is little chance that the US government, or any other, would allow companies to fold on the scale required to make the steel industry more efficient. For it has been in trouble for decades, and despite quota restrictions, tariffs, and billions of dollars in government subsidies—usually justified as an interim measure to revive the industry—little has changed. Steel companies around the world still have the capacity to produce, each year, at least 200 million more tons of coil, plate, wire, rods, and other products than customers want, with disastrous effects on prices.

That is why we suggest a new way forward: a multilateral steel agreement to cut global capacity by some 15 percent, to about 900...