US Steel Tariffs Essay Example | Topics and Well Written Essays - 2250 words

US Steel Tariffs - Essay Example In 2001, US Steel lost $62 per every domestically produced ton. US Steel, the largest American producer, now that LTV, National Steel, and Bethlehem Steel went bust. US Steel Kosice made a profit of $55 per ton. USSK plans to purchase still mills in the Czech Republic as well. To remedy the situation and the strengthening the domestic steel sector by decreasing imports of cheaper steel and therefore shielding domestic steel producers from foreign competition. The US argued that under the World Trade Organization agreements safeguard measures are acceptable if the domestic industry is severely harmed by the cheaper imports and if these measures are limited to a timeframe of less than four years. The government hopes the industry will take advantage of the break to modernize and become more efficient. The history of the industry, however, sheds doubt on the industry's ability to overcome past inefficiencies (Abboushi, 2006). In March 2002, Bush imposed tariffs of up to 30 percent in th e first year of the new regime on $8 billion of steel imports, mainly from Europe, South Korea, and Japan. This is about one tenth of the global market. The tariffs were scheduled to decline to 24 percent in the second year and 18 percent in the third. Both Europe and Japan are challenging these measures in the WTO (Vaknin, 2004). The optimal tariff maximizes welfare of a large trading country that acts like a monopoly in trade. It is based on the naive assumption that trading partners do not retaliate. It is arguing that US could gain from a tariff if its trading partners do not retaliate. Economists are not arguing that US should restrict imports for this reason. Maximize U[y1 + z1,y2 + z2], subject to F(y1,y2,L,K) = 0. Figure 1 Use Steel trade indifference curves. z2 Optimal Tariff: to = 1/(* - 1), where * = - (z*1/p*1)(p*1/ z*1) is the price elasticity of foreign import demand. For the above reasons, on June 5, 2001, President Bush announced his optimal tariff comprehensive initiative to address the challenges facing the U.S. steel industry. But The American Institute for International Steel (AIIS) opposes the tariffs. Steel distributors largely support President G.W. Bush's decision to impose the tariffs because they expect it to stabilize the market for their suppliers and help financially-struggling mills regain liquidity. Can Protectionist measures ever be justified on economic grounds There is a classic case to suicidal protectionism of the recent steel quarrel between the USA and the EU. American steel producers ended up imposing quotas and tariffs on manufacturers they have only recently purchased in central and Eastern Europe (Vaknin, 2004). This argument has never been used by protectionists. The administration has backtracked. It promised to consider more than 1000 requests to exclude up to $1 billion in steel imports from the tariffs. The gaffe-prone then US Treasury Secretary, Paul O'Neill, said that this is done in order to reduce the "shrillness" of the conversation. More likely, it is aimed to prevent the emergence of an anti-American trade coalition (Vaknin, 2004). U.S. trade policy has been facing widespread criticism around the world. The economic devastation suffered in the United States resulting from the tragedy could be ameliorated by resurgence in the U.S. steel industry. Significant indications of the crisis began to emerge