The US Steel Industry in 2004: Still in Need of Protection?
|
Case Code: ECON006 Case Length: 20 Pages Period: 2001 - 2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.600 Organization : - Industry : Steel Countries : USA Themes: Economics, Politics and Business Enviornment |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Technological Innovations
Steel making technology had evolved slowly over several decades. Open hearth furnaces (OHF) were used in the early 1900s. Companies that owned huge ore reserves, coke ovens, efficient blast furnaces to make pig iron and large open hearths to make steel had an advantage over others. The OHFs involved loading the raw materials into a shallow steelmaking hearth open to flames from both ends. The process produced the higher-quality steel needed in automobiles and certain other applications. Following the second world war, the OHF was replaced by the basic oxygen furnace (BOF)...
Competition
After the second world war, 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...
Consolidation
In the early 2000s, the US steel industry went through a phase of consolidation. Many companies were taken over during this time (Refer Table III). As a result of these acquisitions, around 38 million tons of capacity (around 31 percent of the industry capacity) shifted from small independent firms to larger firms...
Government Protection
Government protection to the steel industry is not 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...
The President's Steel Program
In June 2001, the president of the Unites States, George W. Bush announced his Steel Program. The president's steel program consisted of three parts: start negotiating with trading partners to eliminate inefficient excess capacity in the steel industry worldwide; start negotiating with trading partners to eliminate the market distorting practices including subsidies that resulted in excess capacity; and start investigation under Section 201 to determine whether the US industry was harmed by low-priced steel imports...
Protectionism vs. Free Trade
President Bush's tariff measures to protect the domestic steel industry were hailed by supporters of protectionism but were vehemently criticized by proponents of free trade. Justifications were given on both sides. Some analysts felt that the 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. The importance of steel as a commodity in the US economy was next only to oil. Steel was a source of political and economic strength for the country. Some of these analysts added that major steel producing countries such as Japan and Korea were not dependable trading partners as these countries had in the past resorted to unfair trade practices such as dumping and predatory pricing...
Trade Wars
As expected, the imposition of Section 201 tariff measures by the president was vehemently opposed by the US's major trading partners including the European Union (EU), Japan, Brazil, South Korea and other countries, and they complained to the WTO Appellate Body. The EU even threatened to impose tariffs upto 100 percent on US imports valued at $435 million unless the US government dropped the tariffs...
Section 201 Tariff Measures Lifted
In December 2003, the president lifted the tariffs, thus avoiding a trade war with the EU and Asian countries. Announcing the lifting of the tariffs, the president said, "I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods. The safeguard measures have now achieved their purpose, and as a result of changed economic circumstances, it is time to lift them."...
Future Outlook
According to David S. Sutherland, chairman of American Iron and Steel Institute (AISI), "...the U.S. steel industry faces significant domestic and international challenges in 2004. Raw material costs are increasing rapidly. World steel structural imbalances and trade-distorting practices are not going away. The global attack against US trade laws continues. The China currency and trade deficit problem is harming steel's customers. We need to work closely with our customers this year to preserve and strengthen the manufacturing base in the United States and North America as a whole."...
Exhibits
Exhibit I: Domestic Production, Exports and Imports of Steel in the US
Exhibit II: Imports of Steel in to the US
Exhibit III: Purchasing Magazine Transaction Price for Hot-Rolled Sheet, Midwest Market Average January 1980 - December 2003
Exhibit IV: Bankruptcy Filing by US Steel Companies (1997-2002)
Exhibit V: Falling U.S. Steel Imports since the Late 1990s
Exhibit VI: U. S. Imports of Finished Steel Mill Products
Exhibit VII: U. S. Imports of Finished Steel Mill Products
Buy this case study (Please select any one of the payment options)
| Price: Rs.600 |
Price: Rs.600 | PayPal (13 USD) |
