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With more than 30 steel companies in US having filed for federal bankruptcy protection since 1998, the country's steel industry is in deep trouble with prices at their lowest in 20 years. The Bush administration has resorted to protectionist tactics, but this could lead the President to fight another battle, unfortunately with his own trading partners.
The ailing US steel industry has been experiencing an extensive and painful restructuring process over the years. So far, it has spent $50 bn for modernizing its plant and equipment and has laid off over 300,000 workers, nearly three quarters of its labor force. But nothing seems to be working out for them. In a desperate move, President Bush resorted to imposing import duties.
But why does the US steel industry need protection? The reasons are not far to seek. More than 30 steel companies have filed for federal bankruptcy protection since 1998. The industry is in deep trouble with prices at their lowest in 20 years. Industry observers say the main reason is the glut of cheap imports from countries such as Japan, Russia, China and South Korea, combined with steel overcapacity all over the world, which led to falling steel prices especially in North America. Every segment of the steel industry, regardless of the region, the size of the companies, or whether they use mini-mill or integrated production processes has seen its profitability suffer in recent years. Integrated and mini-mill producers have both called for action to address the market distortions in the steel sector and are also asking the government to impose Section 201 (safeguards) relief. However, the importing countries including European Union has objected strongly to the latest US move. And, the worst of all, it is threatening a trade war between the world's biggest trade blocs.
Given this background, the US International Trade Commission (ITC) recommended that special duties of 5-40 percent on 16 categories of steel products be levied to protect its domestic industry. In total, these product categories represent some 75 percent of total US steel imports. In an effort to save what's left of a dying steel industry, the Bush administration embraced the idea of higher import tariffs up to 30 percent for steel from some foreign competitors for three years, claiming that other countries are dumping steel at below the cost of production and damaging its domestic industry. While announcing the new tariffs on March 6, 2002, President Bush said, "I take this action to give our domestic steel industry an opportunity to adjust to surges in foreign imports, recognizing the harm from 50 years of foreign government intervention in the global steel market."
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