Case Study: The Politics of Trade in Steel

Case: The Politics of Trade in Steel

In March 2002, President George W. Bush imposed sweeping tariffs ranging from 8 percent to 30 percent on a range of steel imports from foreign producers. The tariffs were scheduled to remain in place until March 2005. The move was an attempt to rescue an industry that has been shrinking for years, but still provides 160,000 jobs in the United States. When the tariffs were announced, 16 American steelmakers were operating under the protection of the bankruptcy court. Leo Gerard, the president of the United Steelworkers of America, the main labor union in the industry, said the tariffs would protect American jobs by offering the industry a chance for survival. Echoing this, the managers of steel companies said they needed trade protection to give them time to upgrade their mills so that they could better compete with foreign producers.

This wasn't the first time the U.S. steel industry sought, and got, government protection from foreign producers. In fact, the steel industry has received periodic protection of one sort or another for the past 30 years. Despite this, many producers have continued to suffer as more efficient foreign producers and perhaps just as importantly, efficient nonunionized U.S. mini-mills such as Nucor Steel, have taken market share from old-line unionized steel companies. Mini-mills, which utilize electric arc furnaces to smelt scrap steel, now hold 40 percent of the U.S. steel market, up from nothing in the 1960s, and unlike many older steelmakers, most of the mini-mills are profitable.

The main losers of the Bush tariffs appear to be foreign producers and U.S. consumers. Producers in the European Union were particularly incensed by the tariffs, since more than one-third of their, $4 billion worth of steel exports were to be hit by a 30 percent tariff, and they feared that the EU market would now be flooded with steel that other foreign producers diverted from the United States. The EU immediately stated it would seek compensation from the United States, as allowed for by World Trade Organization (WTO) rules. If granted, this would raise the costs to the United States of the Bush tariffs.

In the aftermath of the Bush tariffs, consumers of U.S. steel saw the price of steel jump, which raised their costs and made them more uncompetitive in the global marketplace. In the months following the imposition of tariffs, the price of steel products in the United States rose between 30 percent and 50 percent. Cold rolled steel, which is used by automobile manufactures among others, was averaging $525 a ton in the United States versus $280 in Japan and $304 in Germany. According to Gary Hufbauer, an economist at the Institute for International Economics this round of price increases is just the latest in a long line of costs that steel tariffs have imposed on U.S. consumers over the last three decades. Hufbauer has estimated that efforts since the 1970s to protect U.S. steel have cost U.S. steel users some $120 billion in the form of higher prices.
In August 2002, the World Trade Organization told the European Union it could impose some $2 billion in retaliatory tariffs on imports from the United States. With the threat of a trade war looming, and U.S. steel users complaining vociferously to the White House about higher steel prices, the Bush administration announced it would roll back many of the tariffs on EU steel. In response, the EU stated it would not impose retaliatory tariffs. While this action bought some relief to U.S. steel consumers, the higher prices persisted throughout the fall of 2002, and with many tariffs still scheduled to stay in place until 2005, no short-term relief seemed imminent.

1. Do you believe the Bush administration was correct in imposing tariffs in March 2002 on a wide range of steel imports?
2. Who are the main beneficiaries of protective tariffs such as those imposed on steel imports? Who are the losers?
3. Does the World Trade Organization in this case represent a loss of U.S. national sovereignty? Why do you think the WTO sided with the European Union?
4. If all tariffs on international trade in steel were removed, and subsidies to steel exporters around the world were banned, who would this benefit? Who would lose from such action?