Impact of Protectionism on the U.S Steel Industry

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The US steel industry has been in existence since the late 19th century. After World War II, the US steel industry continued its leadership position globally. There was hardly any import of steel into the US as the steel firms in Germany and Japan were destroyed during the War. The US steel industry exported a significant amount of the steel it produced. However, by the late 1950s, Japanese and European steel industries recovered from the War and started exporting to the US. While the domestic production of steel increased by 48 percent between 1950 and the end of the twentieth century, imports grew substantially during the same period.
 
Since the late 1960s, the US steel industry has been asking for protection from imports and subsidies to help alleviate its troubles. The dominance of the US steel industry seemed to be over by 1970, and domestic steel consumers became increasingly dependent on cheap imports. During the same time, the development of electric furnace technology reduced the barriers to entry in the steel industry and the dominant position of the integrated steel players was challenged for the first time. In the 1980s, the government imposed quotas limiting imports to 20 percent of the US market. The industry was also protected by voluntary restraint agreements on imports. In the late 1990s, the Clinton administration imposed a 12-point plan to protect the domestic industry from the ‘dumping’ of Japanese steel.

In the late 1990s, US steel companies and trade unions came together in a show of solidarity to curb imports. According to George Becker, president of the United Steelworkers of America (USWA), the US steelworkers were suffering because of economic failures in other countries, the notable ones being Russia, Japan, and Brazil. Another problem was that despite increasing domestic competition in the steel industry, there was no increase in demand for steel. The mini-mills with their cost-effective production techniques increased competition in the industry. There was also an increase in productivity. Output increased from 400 tons in 1990 to 600 tons in 2000. However, since there was no increase in demand, the steel manufacturers had to cut their labor force.

The Clinton administration faced pressure from the US Congress and the steel companies backed by trade unions, to take steps to curb imports. The Clinton administration also hinted at offering relief to the steel industry under Section 201(which allows the government to impose tariffs or quotas on a temporary basis provided it was proved that imports were harming the domestic industry). The industry also began lobbying the government to fund its legacy costs, i.e. pension benefits to employees, and to provide healthcare benefits for employees who had lost their jobs after the companies filed for bankruptcy and shut down plants. According to analysts, the estimated cost of funding the legacy costs would be between $10 billion and $13 billion.