Impact of Protectionism on the U.S Steel Industry

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1. Comment on protectionism vs. free trade in the US steel industry.

Answer:

President Bush’s tariff measures to protect the domestic steel industry were hailed by supporters of protectionism, while the supporters of free trade criticized it severely. Analysts who supported protection felt that without protection, the US steel industry would find it difficult to reorganize and become more competitive. Protection from government would help the industry to modernize facilities and also regain its leadership position in quality and productivity.

During the early 2000s, the industry was finding it difficult to fund healthcare and pension benefits of around 600,000 retirees from the steel industry and their dependents. As the industry alone could not fund such huge amounts, protection from government was required to help the industry meet these costs. On the other hand, analysts who supported free trade argued that protectionism alone could not revive the US steel industry.

They said the industry was suffering not only because of foreign competition but also because of worldwide excess capacity and overproduction, which was the result of government protection to the steel industry in their respective countries. Without government protection, steel producers would not produce more than the market could absorb because this would add unnecessary costs to their operations.

Further, subsidies offered to the US steel industry were more than what were normally offered. In fact, according to them, the government’s protectionist policies had adversely affected market efficiency and innovation in the industry. They alleged that far from benefiting the country, protectionism was actually responsible for many of the ills of the industry in the early 2000s.