Case Overview, Global Steel Safeguard Investigation

 

           Free trade is trade without tariffs, quotas, or other restrictions on the importation of goods from other countries. Economists believe it is a generally a mistake to restrict trade in the hopes of protecting indigenous industries. Periods of high tariffs (like Smoot-Hawley in the 1930's) contribute to economic downturns. Still, free trade is not good for everyone. Although American consumers benefit from being able to purchase lower cost goods from overseas, the people in this country that manufacture those same goods may lose their jobs because overseas workers from developing countries work for much lower wages.
           The steel industry is a case in point. Once a mighty industry in this country, it has shrunk under the assault of foreign competition. As more and more steel has been imported from countries like Brazil and South Korea, more American steel producers have gone out of business or downsized their product lines and workforce. The contraction of the American steel industry has taken place over many years and periodically steel companies have launched a counterattack, citing unfair trade practices by producers from other countries. A common charge is that of "dumping." Dumping is the sale of an export at a lower price than the price for the same product in the home country. A manufacturer might dump a product in its exports because it allows them to keep their factories operating full-time, yields economies of scale, or helps them establish market share and drive out competition in the importing country. Once competition is reduced in that country, prices can be raised.
           The United States has sometimes adopted antidumping tariffs when it has been determined that a foreign producer is engaging in the practice. At the end of the Clinton years steel companies made another attempt to limit foreign steel imports. The process in place to consider such requests takes place at the International Trade Commission. A president can submit a formal request for what's called a 201 investigation and the agency then initiates an inquiry. If dumping is found, tariffs or other penalties can be imposed. The Clinton administration was relatively unsympathetic to the industry and showed a strong commitment to free trade during the Clinton's time in office. George Bush wooed the steel industry during the 2000 campaign and campaigned hard on the issue in two steel states, Pennsylvania and West Virginia. During his first year in office Bush requested a 201 investigation and in 2002 he increased steel tariffs.
           Bush's move was popular with steel workers and steel executives but less popular with economists and companies that purchase steel for the products they manufacture. Estimates run to over $700,000 in costs to consumers for every steelworker job saved. Moreover, the European Union retaliated against the United States and a trade war with the EU is hardly desirable as it will penalize American exporters. Steel consumers were angered by the price increases that resulted. One Washington lobbyist working on behalf of companies that buy steel, said it was important to remember "that there's a nine to one job [ratio] in the consuming industries to steelworkers." President Bush was left with a decision whether to lift the antidumping quotas or face the retaliatory actions of the EU. With the election of 2004 looming, and Pennsylvania and West Virginia sure to be swing states again, it is surely going to be a difficult choice.