Steel - Econ 471
Steel - Econ 471
Steel - Econ 471
USITC explanation:
Third Parties: Brazil; Canada; China; Chinese Taipei; Cuba; Japan; Korea, Republic of; New Zealand;
Norway; Switzerland; Thailand; Turkey; Venezuela, Bolivarian Republic of
Agreements Cited:
● GATT 1994: Art. I.1, XIII, XIX:1
● Safeguards: Art. 2, 2.1, 2.2, 3, 3.1, 3.2, 4, 4.1, 4.2, 5, 5.1, 5.2, 7, 7.1, 9, 9.1
Brief Timeline:
3/13/02 Request for consultations by the European Union
5/5/02 EU, Japan, Korea, China, Switzerland, New Zealand and Norway
request the establishment of panels to examine their complaints
● Japan claimed the reasoning used to continue duties was inconsistent with
GATT, the Anti-Dumping Agreement and the WTO agreement
Japan Settlement Results
● The Panel rejects all of Japan's claims
○ US Sunset Policy Bulletin
○ U.S. prediction on continued dumping
● Japan Appeals
● Appellate Body
○ Upholds three findings
■ Except bulletin can be challenged in WTO dispute settlement
United States safeguard measures failed to meet the basic prerequisite conditions:
● SA Arts 2.1 and 3.1 (Conditions for Safeguard Measures - Increased Imports)
● SA Arts 2.1, 3.1, and 4.2 (b) (Conditions for Safeguard Measures - Causation)
President Bush’s Reaction
Initial Response:
● "Our response is that the steel safeguards ... were put in place to give our
domestic industry an opportunity to restructure and consolidate and become
stronger and more competitive," (November)
● Bush declared we would preserve the tariffs
The United States backed down and withdrew the tariffs on December 4, 2003.
The Bush Tariff and Import Data
Anomaly of China:
● New Market beginning in late 90s
● 2000-2003 China experienced a 20% annual growth rate
Top 10 Exporters of Iron and Steel in the World (2000-2004)
Top 10 Exporters of Iron and Steel in the World (2000-2004)
Tariff Worked...
● Exports to US went down while the top 10 exporters to World went up
...Somewhat
● US companies still went bankrupt or merged
○ Hence the drop from 7 to 10th on world exports of steel
● Already declining trend of US imports
● CAN and MEX imports stagnant, slightly increased
● Deadweight Loss associated with Tariff
● Consumer surplus loss, price of steel rose $200/ton to $300/ton
Reading the data
Does the data relate to each organizations’ claim?
WTO
USITC
Japan
China
USA
Japan
Claim: “Inappropriate definition of ‘like products,’ inappropriate fact-finding related
to ‘increased imports,’ and unclear causal link between increased imports and
‘serious injury.’”
CATO Institute agrees with Japan that decline in steel industry is a result of lack of
competitiveness rather than unfair foreign imports
WTO
Claim: Against tariff-rate rules, US ‘import surge’ claim inaccurate, $2B sanctions
Data: Definite drop in imports from 2000 - 2001, slight decrease 2001 - 2002
USITC
Claim: Heavily subsidized foreign steel is flooding the market, harming US steel
producers, 30% of steel firms filed for bankruptcy
Bankruptcy claims true, but foreign imports play minor role compared to constant
government intervention allowing unsuccessful firms to stay afloat and harm entire
industry
Data:
Articles of Iron and Steel: $2B (2000), $3.5B (2003), $5B (2004)
USA
Claim: “[The] safeguard measures have now achieved their purpose, and as a
result of changed economic circumstances it is time to lift them.”
Pre-tariff
● 138,000 - below 110,000 (28,000)
○ Imports Declined
Tariff
● 110,000 - 97,000 (17,000)
○ Imports fell
Post-Tariff
● 97,000 - 96,000 (2000 jobs in last 2 quarters of 2004)
○ Imports increasing
Main Takeaways
● Imports and Steel Employment are not strongly negatively correlated
● Tariff did not save jobs
Fall in Steel Employment….
Figure 2. Employment in U.S. Steel Industry
Fall in Steel Employment
Larger Trend in Decline
● ~50% decline in steel employment from 1990 - 2004
● 2005 employment increased…
Causes?
● Technological Improvement
○ Working hours per ton of steel declining
■ 16 hours in 1956 - 4 hours in 1990
■ Less than 2 hours per ton in 2004…
● Demand conditions
Fall in Steel Employment
Technological Improvement Intuition
● Increases production quantity
○ Leads to lower prices (assuming demand is constant)
● To keep a higher price…
○ Workers are fired so that desired level of output is reached
● Firms make higher profits
Demand conditions
● Demand for US steel directly influences employment in US Steel
○ 2000 - 2001 slight recession
○ 2004 -2005 Increase in demand from China
Effect of 2002 Steel Tariff
● Steel Employment significantly fell
○ 13,000 jobs still lost
● Significant price increase of domestic steel
○ Price of Hot Rolled Carbon Steel (Benchmark Product)
■ From $222 per ton to $300 per ton
● Adversely impacted small and medium firms that buy steel directly
○ Larger firms make long-term contracts
Industries that purchase steel
What Industries need steel?
● Industries that produce piping and tubing
● Rolled Steel - bars, rebar
● Steel Wire - nails, spikes, paper clips, and mesh
A Tariff?
● Makes the price of steel more expensive
○ Employment falls
Employment in Steel Dependant Industries
2000: 73,400 - 72,500 2001: 71,700 - 63,700
Imports Declined
Employment in Steel Dependant Industries
2004: 60,200 - 61,200
Positively Correlated
Winners and Losers
Winners:
● US Steel Producers
● Foreign Steel Producers
● Bush
Losers:
● Foreign Steel Producers
● US Producers that use Steel inputs
○ Car industry
○ Construction
○ Home buyers
○ Appliance buyers
● Employees of Steel Producers and Steel Dependant Industries
Lobbyist and PAC Supporters
Lobbyist For Tariff:
● US Steel Producers
● Protectionist
PAC Supporters:
● AK Steel
○ 128k in 2000
○ 169k 2002 and 2004
Additional Data
● Data on Government Subsidies for the top exporters to the US
● Data on the Price of Steel
● Data on US steel industry in years up to tariff
● Information on how the 2000-2001 recession affected import demand
Bibliography
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