Estimated Economic Effects of Proposed Import Relief Remedies for Steel
As part of the Section 201 Investigation on steel imports initiated by the Bush Administration, each of the six U.S. International Trade Commission (ITC) Commissioners recommended on December 7, 2001 that the President impose a range of tariffs and quotas on steel imports into the United States. The covered imports amount to approximately 74 percent of total volume of steel imports. Steel-consuming industries have predicted that the recommended tariffs and quotas would force many of them out of business and others to lay off manufacturing and other workers in an economy that can ill-afford more job losses. They predict the recommended remedies would result in far more harm than benefit to the economy.
At the request of The Consuming Industries Trade Action Coalition (CITAC), Trade Partnership Worldwide, LLC analyzed the potential impact of the ITC recommendations on steel-producing, steel-consuming and other sectors of the U.S. economy. The study estimated the effects of two scenarios: (1) imposition of weighted average tariff recommendations of 9.2 percent on imports other than Canada and Mexico of the products on which the ITC found injury (low tariff scenario); and (2) imposition of average tariffs, weighted by the value of imports, of 20.7 percent on those imports (high tariff scenario).
The results are as follows:
Steel-consuming workers have every reason to be concerned about their future. Higher costs of steel inputs and greater competition from imports of steel-containing products resulting from the proposed remedies would lead to a loss (across all sectors in the United States) of between 36,200 jobs (low tariff scenario) and 74,500 jobs (high tariff scenario). Losses of steel-consuming sector jobs would range from 15,300 to 30,600.
Under either scenario, eight jobs would be lost for every steel job protected.
Every state loses out under the proposed remedy recommendations, including states in the Steel Belt.
As draconian as these remedy recommendations are, they would not restore the U.S. steel industry to profitability. Despite the large drops in imports from the tariff increases, the tariff restrictions affect the volume of domestic production to a much greater extent than price. Under the low tariff scenario, domestic steel prices would rise just 0.2 percent as volume of output increases 2.9 percent; under the high-tariff scenario, domestic steel prices would increase 0.4 percent and volume of output, 5.9 percent.
The remedy recommendations would not help steel workers very much either. The proposed remedies would protect between 4,375 steel jobs (low tariff scenario) and 8,900 steel jobs (high tariff scenario), at a cost to American consumers every year of $439,485 to $451,509 per steel job protected.
The proposed remedies would slash imports. Import volumes would decline by 18.5 percent under the low tariff scenario and by 35.9 percent under the high-tariff scenario. Import prices would increase by 9.1 percent to 20.6 percent, respectively.
Higher prices and other inefficiencies imposed by the proposed remedies would force consumers to pay a total of between $1.9 billion and $4.0 billion a year, and decrease U.S. national income by $500 million to $1.4 billion a year at a time when policy makers are looking for every way possible to boost national income growth.
Steel-consuming industries would face greater competition from foreign manufacturers, as foreign manufacturers would have access to more competitively-priced steel inputs than U.S. steel users. The high tariffs imposed on steel imports would raise the price of these inputs for U.S. steel-using manufacturers but would not raise prices for foreign manufacturers of steel-containing products. As a result, imports of finished steel products, like electric motors, construction materials, appliances and autos, would increase.
About the Authors
Dr. Joseph F. Francois, Managing Director of Trade Partnership Worldwide, LLC, specializes in assessing the economic effects of trade policy. This includes broad-based bilateral, regional, and multilateral trade liberalization, as well as more product specific policies such as the imposition of antidumping or countervailing duty orders, safeguard actions, and the quotas resulting from the rules governing trade in agricultural goods and textiles and clothing of the World Trade Organization (WTO). He co-authored the U.S. International Trade Commissions COMPAS model during his tenure at the ITCs Office of Economics, and ran the WTOs economic modeling team during the Uruguay Round. Francois holds a Ph.D. in economics from the University of Maryland (1988). He can be reached by e-mail at .
Laura M. Baughman is President of Trade Partnership Worldwide, LLC, a trade policy research firm. She follows closely the impacts, both prospective and actual, of trade policies and programs on the U.S. economy and the trade flows of U.S. trading partners. The firm produces detailed economic assessments of these policies and programs based on traditional economic modeling. It also follows closely the U.S. trade policy formulation process in order to assist clients in providing input to that process. Ms. Baughman holds a Masters Degree in Economics from Columbia University (1978). She can be reached by e-mail at