FREE TRADE VS. PROTECTIONISM

Which Way for the US Steel Industry?

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The US Steel industry responded to the crisis in two ways. It started consolidating and launched a political campaign to obtain government protection from foreign competition.

CONSOLIDATION

In early 2000s, the US Steel industry went through a consolidation phase. Many companies were acquired during this time (Refer Table I). As a result of these acquisitions, around 38 million tons of capacity (which is around 31 percent of the industry capacity) had shifted from small independent firms to larger firms. ISG'S acquisition of assets and capacities of three bankrupt companies has given it an addition annual capacity of 20.1 million tons of steel. After these acquisitions, ISG became the second largest producer of steel in the US after the U.S Steel.

TABLE I
CONSOLIDATION IN THE US STEEL INDUSTRY IN EARLY 2000S

Acquiring Company	Acquired Company	Annual Capacity	Year in which Acquired
		(millions of tons)
Gerdau- AmeriSteel	Co-Steel	8.8	2002
International Steel Group Inc. (ISG)	LTV Corp.	7.6	2002
	Acme Metals	1.2	2002
	Bethlehem Steel	11.3	2003
Nucor Corp.	Aubum Steel	0.6	2001
	Trico Steel	2	2002
Steel Dynamics Inc.	Qualitech Steel SBQ LLC	0.5	2002
	Galv-Pro	0.3	2003
US Steel	National Steel	6	2003

GOVERNMENT PROTECTION

Government protection to the steel industry was nothing new. Since the late 1960s, the US steel industry has been asking for protection from imports and subsidies to help alleviate its troubles. In the 1980s, the government imposed quotas limiting imports to 20% 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 'dumping' of Japanese steel.

In the late 1990s, US steel companies and trade unions came together to show solidarity for curbing imports. According to George Becker, president of the United Steelworkers of America (USWA), the US steelworkers were suffering because of the economic failures in other countries the notable ones being Russia, Japan and Brazil. The Clinton administration faced pressure from the 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 201.³

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[3]The Section 201 of the Trade Act of 1974, allows the government to impose tariffs or quotas on a temporary basis provided it was proved that imports were harming the domestic industry. Section 201 was not applicable to unfair trade where foreign governments provided subsidies to products to give them an advantage over U.S products. It was limited to proving whether imports were causing harm to domestic industry. The World Trade Organization (WTO) allows imposition of tariffs and quotas as temporary safeguards.

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