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.