Impact of Protectionism on the U.S Steel Industry

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Another justification was the legacy costs of the industry. In the early 2000s, the industry was finding it difficult to fund these legacy costs, which included healthcare and pension benefits to around 600,000 retirees and their dependents. In 2002, the number of employees in the industry was 142,000, 60 percent down from its peak in the early 1970s. With this number, the industry would not be able to finance the legacy costs of the large number of retirees. The government could use the funds generated from higher tariffs to help the industry meet its healthcare and pension costs.

The government’s protectionist policies had adversely affected market efficiency and innovation in the industry, according to these experts. Imposition of Section 201 tariff measures would increase government intervention in an industry that was already protected, they felt. Statistics show that 80 percent of imports into the US were already subject to tariffs under the US antidumping laws. These laws allowed the government to impose tariffs on steel products that were subsidized by the foreign governments and dumped in the US. But these measures did not seem to be helping the still-struggling industry.

These analysts felt that the industry was struggling on account of homegrown problems. Before the government started protecting the domestic steel industry in the late 1960s, the average compensation in the industry was almost equal to the average compensation in the manufacturing sector. In the early 2000s, the average compensation was more than 50 percent higher than that in the manufacturing sector as a whole. This was mainly because the steel industry was highly unionized and the strong trade unions without any threat of foreign competition could negotiate high compensation packages. Thus, far from being of benefit, protectionism was actually responsible for many of the ills of the industry in the early 2000s.

Questions for Discussion:

1. Comment on protectionism vs. free trade in the US steel industry. Answer1
2. “US steel industry should be protected not only because of the pride associated with it but also because of its key role in the US economy.” Comment. Answer2