The United States Steel Industry Essay, Research Paper

The United States Steel Industry

After years of restructuring, an investment of approximately $50 billion in new plant and equipment, the application of world-class manufacturing technologies and increased labor productivity, the United States steel industry is among the most competitive in the world. With the application of advanced technology, automation has replaced the more labor intensive practices of the past, making the industry energy efficient and environmentally responsible.

Despite the increased steel production within the United States, foreign imports of steel to the United States hit record levels in the past two years. In 1998, the United States had the highest steel import ever. The United States imported 41.5 million tons of steel products, up thirty three percent from the previous record of 31 million tons imported in 1997.

The combined result of numerous steel industrial policies is that the world has tremendous excess production capacity in steel. Dumping, which is sales in export markets below cost or sales below the price in the home market, is the frequent result. In response to the recent increase of steel imports, a group of major U.S. steel producers filed a petition with the U.S. International Trade Commission (ITC) and the Department of Commerce alleging that the steel imports from Brazil, Japan and Russia are sold in the United States at less than fair value.

Under the Tariff Act of 1930, U.S. industries may petition the government for relief from imports that are sold in the United States at less than fair value or which benefit from subsidies provided through foreign government programs. Under the law, the Department of Commerce determines whether the dumping or subsidizing exists, and if so, the margin of dumping or the amount of the subsidy. The ITC determines whether the dumped or subsidized imports materially injure or threaten to materially injure the U.S. industry.

After preliminary investigations in November 1998, the ITC determined that the domestic industry was threatened by steel imports from Brazil, Japan, Russia and South Korea. It was found that there was a significant increase in the volume and market penetration of steel imports from 1995 to 1998. Steel imports from these countries entered the U.S. market in 1998 at prices that depressed or suppressed domestic prices to a significant degree.

In February 1999, the U.S. Commerce Department determined that Japanese and Brazilian steelmakers sold certain steel products to the U.S. for as much as sixty percent below fair market value. It was also found that Japan and Russia have excess capacity which permits them to increase steel exports to the United States.

The situation is complicated by the serious economic problems facing Russia, which remains world’s number one steel-exporting nation, despite the fact that it is also one of the world’s least efficient steel producers. The collapse of the Soviet Union created a huge excess production capacity in Russia. The Asian steel demand has collapsed as a result of economic crisis in that region of the world. Steel that was previously exported to Asia from Russia and elsewhere in being diverted to the United States and other markets.

In addition to this, subsidies continue to distort the world steel trade. Subsidies are given to steel producers in many countries around the world. For example, the Korean government has provided over $6 billion to the now bankrupt Hanbo Steel Company. In contrast, the United States steel industry has generally not been the recipient of such special treatment. The U.S. economy is open and subsidies have been very limited, especially when compared to those of other major industrial countries.

Excess world capacity, restricted foreign markets, and dumping are major problems in the world steel trade. Foreign governments are still providing subsidies to their steel producers. The U.S. steel industry is facing unfair trade practices. The dumping is causing serious injury to the U.S. steel producers and their 165,000 employees.

The purpose of the U.S. antidumping laws is to ensure that foreign manufacturer compete fairly. The United States governments needs to enforce dumping laws, which counter dumping with offsetting duties, and countervailing duty laws, which counter unfair subsidies.

The U.S. government must negotiate forcefully with other governments concerning unfair trade. The U.S. government needs to open foreign markets to steel and steel-containing products and eliminate foreign steel subsidies. The U.S. government needs to ensure that efficient, competitive U.S. steel capacity will not be driven out of business due to excess world steel production. By imposing duties on the imports that are most heavily subsidized or dumped, the U.S. steel industry will be able to compete fairly.

An alternative approach that may be used is to limit steel imports through a Voluntary Restraint Agreement which may also preserve the U.S. steel industry. However, this approach may not be attractive for the industry because the government, not markets, determine the market shares and quota rents would go to the foreign governments or companies.