The current U.S steel industry is inclusive of approximately 100 steel production and steel supply facilities, and supports the livelihood of approximately one million Americans. The history of the American Steel Industry started in the colonial era where there was need to develop tools that will help in planting crops, hunting, and building homes. It was not until the 19 th century when the advancement in technology reduced the cost of production and increased the production qualities in this industry, and thus making it very dominant. The industry has grown ever since to become one of the top competitors in the global market. However, the United States has also become one of the largest importers of steel around the world. However, since the 1960s the industry has seen a decrease just like the railroads and coal industry. The rise in the level of import has a negative effect on the local producers and thus has resulted in the recommendation to increase the tariffs.
Benefits of Tariffs on the American Steel Industry
A tariff is considered to be the charge that is placed on all the goods that are imported into a country. America is considered to be the biggest steel producer and consumer but about thirty-one American steel producers have previously gone bankrupt as a result of cheap steel imports. In addition, in November 2001, reports indicated that the International Trade Commission had discovered that the US industry had suffered greatly as a result of the imports ( Ray, 2014). The recommendation that it gave was for the president to impose tariffs on the imports that ranged between 15 percent and forty percent depending on the type of steel. The strategy was expected to increase the domestic price and boost the industry.
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A tariff on imports of foreign steel in the U.S will definitely increase the price of the steel that is imported and thus would encourage the local consumers and firms to buy the steel that has been produced domestically ( Northrup, 2003). Currently, there is a rise in the steel imports in the country because the American producers find it cheaper to import the product from foreign countries such as China, Europe, and Canada. Therefore, there is the feeling that the American producers are not benefitting.
There is the argument that the US trade deficit and cheap imports are key factors behind the decline in jobs and the US steel industry. Therefore, higher tariffs on the imports would encourage the domestic firms in the US to purchase steel that has been produced domestically. It will then benefit the local steel industry through the creation of jobs. However, even though there will be a positive effect on these jobs, there are harmful effects in other parts of the economy ( Bueno, 2014). More specifically, consumers will face higher prices in purchasing steel in this industry and thus would have less disposable income to buy other products. It means that other domestic industries are likely to face a fall in their demand resulting in a fall in the employment.
The increase in the tariffs would ensure that the U.S is able to face fair competition in the domestic market ( Lind, 2006). Currently, the local companies are not facing fair competition from foreign companies who are able to export steel at cheaper prices to the United States. For example, if the ultra-low steel prices in China are as a result of state support of over-capacity then this would drive the prices below the country’s long-term equilibrium. In a case where the U.S steel industry closes down, then China will gain the opportunity to become a monopoly and will have the power to increase the prices significantly. Therefore, it is justified for the US to protect itself from international competition and to protect the industry from the effects of ultra-low prices.
Tariff on imported steel is beneficial to the local producers because of the fact that it will encourage the domestic prices to increase. An increase in the domestic prices will encourage domestic producers to increase their production so that they can get more profits. Profit increases in these companies will, in turn, result in increases in the level of revenues that is received by the government ( McEachern, 2009). On the other hand, if the tariff is too high then the foreign producers would not be able to export to the US and thus the government would not be able to get tariff revenues. In addition, even though the welfare of the local producers and the government is likely to improve, it is worth noting that this is not the case for everyone because the consumers are likely to feel the negative effects of increased prices.
Even with the benefits that come with the increase in tariff in the industry it is worth noting that the consumers would not feel the benefit. If the country places tariffs on cars and steel imports, there will be an increase in the production costs which will then be passed to the consumers ( Krueger, 1996). The increase in the prices can be relatively marginal, but can at the same time spread throughout the economy. The rise in the prices will then decrease the disposable income. The benefit that consumers get from such a strategy can be in the long run where they are in a better position to get the protection of the domestic industries from the government because the government is in a better position to regulate the local firms and considering the fact that the tariffs can encourage local companies to make improvements.
Tariffs also increase the competitiveness of local steel companies that are currently trying to survive in a market which is flooded by cheap foreign steel ( Mankiw, 2007). The strategy would protect the domestic companies from cheap steel that come in countries such as China. However, such restrictions should be thought of care to avoid a situation where the domestic firms become inefficient because of lack of competition ( Old, 1985).
Conclusion
The steel industry is considered to be one of the most important industries not only in the US but also around the world. However, the industry in the US has seen a constant decline because of competition from cheap exports. Tariffs can be useful in this case in terms of offering temporary support for a local industry. Another advantage of tariffs is the fact it would improve the performance of the local companies which will then benefit the local steel industry through the creation of jobs. The increase in the tariffs would ensure that the U.S is able to face fair competition in the domestic market when compared to now where there is unfair competition from cheap foreign products. An increase in the domestic prices will also encourage domestic producers to increase their production so that they can get more profits. An increase in profits will then increase the level of revenues that is received by the government which will then have a positive effect on the economy. The strategy would protect the domestic companies from cheap steel that come in countries such as China. However, even with the benefits that come with the introduction of tariffs, there are negative effects that need to be considered.
References
Bueno, . M. B. (2014). Principles of international politics . Los Angeles: Sage/CQ Press.
Krueger, A. O. (1996). The political economy of American trade policy . Chicago: University of Chicago Press.
Lind, N. S., & Tamas, B. I. (2006). Controversies of the George W. Bush presidency: Pro and con documents . Westport, Conn: Greenwood Press.
Mankiw, N. G., & Taylor, M. P. (2007). Microeconomics . London [u.a.: Thomson.
McEachern, W. A. (2009). Economics: A contemporary introduction . Mason, OH: South-Western Cengage Learning.
Northrup, C. C., & Turney, E. C. P. (2003). Encyclopedia of tariffs and trade in US history: Vol. 1 . Westport, Conn: Greenwood Press.
Old, B. S., National Academy of Engineering., & National Research Council (U.S.). (1985). The Competitive status of the U.S. steel industry: A study of the influences of technology in determining international industrial competitive advantage . Washington, D.C: National Academy Press.
Ray, J. L. (2014). American foreign policy and political ambition . Los Angeles : Sage/CQ Press.
