Since 1999, domestic steel producers have continued to pressure the U.S.

government to
restrict or block foreign steel imports. The Section 201 tariffs, ranging from 8 percent to 30
percent on certain kinds of foreign steel, are imposed on 2003 to stop international
competition and give the domestic industry an opportunity to reorganize, regroup and
consolidate. The U.S. decision to impose tariffs is defended by pointing out that global steel-
producing capacity is excessive and countries have been eager to export their products to the
United States particularly after the financial crisis in South-East Asia and Russia in the late-
1990s. Moreover other steel-producing countries heavily subsidize their manufacturers.
Similarly it is required to protect the U.S. steel makers through the tariffs. The safeguards aim
at addressing the global overcapacity and market distortions which causes reduced steel
prices and decreasing profitability of steel companies.

Impact within U.S

The U.S. decision to protect steel makers is considered as a political motive by the
industrialistas of all over the world rather than one based on economies of scale. Congress is
targeting the coming elections and means to gather political support from the steel companies
backed by trade unions. According to the opinion of specialists, putting up trade barriers
would not solve their home-grown problems such as getting easy money by the trade union
without facing competition. It also discourages U.S. steel makers from restructuring their
operations and growing in the longer-term.

The industry has undergone substantial consolidation by eliminating the redundant
capabilities and inefficient process. Also, U.S. steel producers have benefitted by reducing
competition, delaying investments and slowing the rate of unemployment for steelworkers.
However, U.S. steel-using industries are harmed because Section 201 tariffs raises the price
of steel in the U.S. Steel consumers, both steel-using industries and end consumers of steel
products, now pay more for steel and steel products. Again these benefit the U.S. steel
producers which can now sell their steel for higher than the international price and earn the
extra profit.

Impact outside U.S.

Many countries had opposed the U.S. decision to introduce tariff measures against imported
steel products and tension among the trade partners over the policy have mounted. The EU
has threatened to impose tariff of up to 100 percent on imports of products from U.S. The
countries other than the Europeans that will have the impact from the U.S. move to slap
tariffs of up to 30 percent on a range of imported steel products are Japan, South Korea,
China, Taiwan, South Africa, Turkey and Brazil. They will now suffer from surplus finished
steel products like hot and cold-rolled sheet steel and coated steel.

Developing countries such as Poland, Czech and Slovakia are included in the safeguard
measures which forces them to either reduce the output or increase exports in other markets,
or pay high tariffs in order to continue to supply the U.S. Whereas countries like Canada,
Israel, Jordan and Mexico are exempted from the tariff hikes as part of the North Atlantic
Free Trade Agreement that allow them to increase exports without reducing the price. The
EU has complained to the world Trade Organization and this is how the issue over steel tariff
rapidly escalates into a wider trade war.

Conclusion

Although government intervention attempts to avoid unemployment, it raises the price of
steel as well as other goods. Instead of removing competition by restricting trade,
government must force the industry to take advantage of innovation and restructure to
respond more accurately to consumer demands.