American steel - a crisis at all?

Introduction

The American steel industry and the United Steelworkers of America are again lobbying for federal action to protect their industry, as they have been since mid-1997. The Democrat Clinton administration ignored their calls to action, but the more pro-business Bush administration launched an investigation which led to tariffs of 30% being imposed on steel imports. This was 10% less than the steel industry demanded, but is still a significant increase in prices for steel-importers.

The state of the steel industry

Apparently, the tariffs are needed to save the American industry and jobs in it. Problems began with the Asian financial crisis, as Asian steel mills experienced a huge drop in domestic demand. They turned to the United States as a new market for their product, and started selling at a massively low price. This brought on accusations of dumping ("exporting a product at a price lower than the price it normally charges on its home market", illegal under WTO rules).

Indeed, imports from foreign countries have risen sharply recently. In the first seven months of 1999, steel imports rose 130% from Japan, 93% from Korea and 19% from Russia. In the last few years Bethlehem Steel, Laclede Steel Co. and LTV Steel all filed for Chapter 11 bankruptcy protection. 50,300 jobs have been lost since the "crisis" began. Cheap steel from abroad is taking orders away from domestic mills, say the steel unions.

This is all a result of globalization - as markets become more global ("the world becomes smaller"), competitiveness increases. Power is shifted from the producer to the buyers and buyers are more free to pick and choose what is best for them (they have consumer sovereignty). The idea of the U.S. steel tariffs, imposed in March of 2002, is to give the steel industry time to restructure internally to cope with the global market and dumping practices.

The problems with the tariffs

Are the tariffs a good idea? The steel industry may be laughing, but steel-consuming industries are not. There are forty jobs in the steel-consuming industries for every one in the steel industry. These jobs are now at risk as the price of steel products rises 30-50%. Many small companies are now facing an impossible rise in their bottom line which they are unable to absorb. These companies lack the power to pass their cost rise onto their customers, and hence jobs in the automotive, construction and machine part industries are at risk.

There is also the possibility of copy-cat tariffs being imposed against U.S. exports. Indeed, countries against which the U.S. has imposed these restrictions would be perfectly justified in fighting back in kind. The truth is that this latest bout of protectionism is probably more due to effective lobbying than what is actually needed. Jobs in the American steel industry have declined by 70% since the 1970s despite periodic bouts of protectionism. This is due to an increase in efficiency and a move to more capital-intensive production. At the moment the U.S. government appear to be effectively taxing the consumer with higher prices to subsidise the steel industry.

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