U.S. STEEL INDUSTRY

Since the late 1960s, the steel industry has been complaining that foreign steel producers are dumping cheap steel onto the U.S market causing U.S steel producers uncompetitive. The U.S. International Trade Commission (USITC) recommends that the U.S. government shall impose tariffs of up to 40 percent on steel imports. The President has decided to offer support by raising tariff on steel import to protect domestic workers from global competition. It seems that such protection will give the industry an opportunity to be able to grow and compete on an equal basis. Countries under NAFTA are excluded from the tariff hikes.

Root problem

Exhibit V of the case shows that steel imports have fallen from 4 million tons in August 1998 to 2.6 million tons in November 2001. So competition from imports is not the problem. Steel manufacturers are suffering because of the worldwide excess capacity and production of steel products more than consumers demand. In the late 1990s, according to US government officials, there was an excess capacity of 200 million metric tons of steel worldwide.

Rising price and losing job

Such decision pleases the steel producers but has depressed the steel users. Steel is used in various industrial applications from vehicle manufacture to road building. US steel producers have taken advantage of the protection by raising their prices. But steel using industries have paid a higher price to buy steel from the US producers. Hence they have the option of transferring the work to Canada rather than manufacturing component parts in the US. So getting a Canadian company to manufacture the component and then ship it to the US will help to keep costs low and avoid having to pay the tariff. If the work is transferred to Canada there is no need for the workers in the US. Therefore interfering in the market to solve a problem in one sector creates other problems elsewhere.

Hindering free trade

Raising tariffs on steel also causes the worldwide trade war that hampers the economic growth. The WTO allows EU and other countries to impose tariffs on imports of products from US. So the fortune of the key US industries such as agriculture, automobiles and financial services is threatened.

Delayed restructuring

The steel industry needs to undergo a restructuring to eliminate excess capacity and reduce production levels to consumption levels. Increasing government intervention prevents the unsuccessful firms to become more efficient or exit the industry. Departing unsuccessful firms from the industry will result in reduced capacity which will decline the supply of steel. So the only way to reduce the current overproduction is by eliminating government intervention in the steel industry.

Subsidising uneconomic funds

Generating funds from higher tariff to meet the legacy costs such as health coverage, pensions of retired individuals will provide a precedent for other industries to seek similar subsidies. This will also allow the industry to delay the restructuring process in order to compete with the global steel market. The legacy costs shall be met through subscription from the employees salary.

Conclusion

The U.S. steel industry must focus on necessary improvement; instead of ineffective trade restrictions. Protectionist policies of the past will continue to inhibit market efficiency and innovation and result in more harm than good for the U.S. as well as globally.