Effects Of Trade Tariffs: Government Protection

Effects of Trade Tariffs Institution Affiliation Date Effects of Trade Tariffs Traditionally, steel has been an important industry across the world. Additionally, steel is an important element of the economy. To protect this important element and industry, governments across the world have been and are willing to protect their industry. The global consumption of steel has been increasing throughout the years. America is one of the world’s leaders in the production and consumption of steel, but the sector is crippled by the cheap steel imports from competitor countries. Throughout the American history, different regimes have used the law to protect the sector with the aim of raising domestic prices and boosting the industry. Without the protection, the producers and consumers of steel face risks of job reduction, stiff competition from foreign rivals. The imposition of tariffs on steel imports violates the World Trade Organization guidelines. Although the tariffs are aimed at reviving the industry, they may cause more harm to the economy than their intended objectives. After WWII, the United States steel industry continued with its leadership which it had enjoyed maintained for decades. The country was not importing steel since producing firms in countries such as Japan and Germany did not survive the war. The United States’ steel exports increased significantly. However, in the 1950s, the destroyed companies in Japan and Europe recovered and begun to export steel to the United States of America. Although records indicate that the domestic steel production increased by more than 45% between the 1950s and the beginning of the 21st century, the amount of imports increased by more than 30,000 percent. The leadership position of the U.S steel industry was threatened in the 1970s and local consumers begun to depend on cheap imports.[Coffin A Donald, The state of steel, Indiana Business Review, Spring 2003, Vol. 78, No. 1] Government Protection The protection of the U.S Steel industry is nothing new in its history. During the late 1960s, the US Steel industry begun to request for protection against foreign players and subsidies to enable them solve their problems. In the 1980s, quotas were imposed by the government which limited the amount of imports to 18.5% of the domestic market. Additionally, the industry was further protected by voluntary restraint agreements. During the 1990s, the industry also received protection of 12% from the Clinton administration against Japanese Steel. In the late 90s all industry players joined hands to support the curbing of imports into the country. George Becker, the president of the United Steelworkers of America stated that the industry was suffering due to economic failures in foreign countries such as Russia, Brazil and Japan. Due to pressure from the industry players and the Congress, Clinton was compelled to impose quotas based on Section 232 in 1969. Another attempt to protect the steel industry was made by President Jimmy Carter by imposing a price floor for imported steel. Technically, this was not a tariff but it forced foreign steel producers maintain their prices at certain levels that does not undercut local producers.[Pearson Education. American Steel Quotas. Higher Education. https://wps.aw.com/bp_perloff_microecon_7/242/61989/15869403.cw/content/index.html] [Bryan B. (March 2, 2018). Trump’s newest trade policy has been tried before – and it was terrible for the US economy. Business Insider. /bi/politics/trumps-newest-trade-policy-has-been-tried-before-and-it-was-terrible-for-the-us-economy-id8056314.html] Recent presidents have also tried to revive the industry. For instance in 2001, to protect the industry, George W. Bush launched a Steel Program that consisted of three parts; negotiate with trading partners reduce the excess capacity, negotiate with trading partners to eliminate distorting partners and conduct an investigation under Section 201 to determine whether the harm was from the importation of cheap steel. In 2002, George W. Bush imposed tariffs that ranged from 8% to 30% on the various varieties of steel and were to be applicable for 3 years. George W. Bush’s were not applicable to certain countries such as Canada, Mexico and Israel. However, Bush’s was forced to remove the tariffs because of international reactions and the negative economic effects that were likely to result. President Obama also attempted to curtail cheap steel imports by imposing high tariffs on specific types of steel used in automobiles to reduce Chinese imports into the country.[Tariffs on steel, George Bush, protectionist, The Economist, March 7, 2002. /node/1021395] Based on the above short history of the US Steel industry protection, President Donald Trump has followed some of his predecessors to protect the country’s Steel industry with the most analogous case being that of President Bush. In March 2018, President Donald Trump announced the stand on trade tariffs that will be applicable to all foreign producers except Canada and Mexico which will be affected after a period of 14 days based on Section 232. During his announcement, the president stated that this decision was taken in an attempt to save the domestic steel players. He further stated that the decline in domestic steel had been a major economic issue which has affected the country negatively due to bad policies in the past and poses a threat to the National Security. Donald Trump followed President Nixon’s steps of imposing the tariffs based on Section 232. This initiation is based on Section 232(b) which provides “Commerce may initiate investigations at its own initiative or at the request of the head of another U.S government agency or in response on an application from company or other private party.” This law has never been used since the creation of WTO in 1995 which does not support such decisions. It was first used in 1971 by President Richard Nixon to impose tariffs of up to 10% on imports to contain the country’s deficit during that time. In the announcement, Trump slapped a 25% tariff on steel and 10% on aluminum.[Dattu, R. Glossop, P. & Kim, M. (April 28, 2017). International trade brief: Trump administration investigates impact of steel imports on U.S. national security. Osler. /en/resources/cross-border/2017/international-trade-brief-trump-administration-in] [Straw, W. (feb 2018). Trump’s latest trade war should come as no surprise . anonymus : Left Foot Forward: Evidence-based political blogging] [Skadden Arps Slate Meagher & Flom LLP. (April 24, 2017). National security investigation of imported steel could be prelude to similar actions against other imports. Lexology. /library/detail.aspx?g=e94df6e4-2699-4806-a1b3-065f5bd3c73f] [Campbell A. F. (March 8, 2018). Trump’s steel tariffs are hated by almost every US industry; Except steel. Vox. /policy-and-politics/2018/3/2/17070816/trump-steel-aluminum-tariffs-businesses] As expected, imposing Section 232 by the president has received vehement criticisms and support from trade partners and domestic players such as China. Economists in the country claim that the imposed tariffs are likely to fail to revitalize the domestic producers. The procedures will impose additional costs on the rest of the economy. Protecting the American industry was one of Trump's centerpieces during his campaign in 2016. During his campaign, Trump stated that the American steel would be the one to revive Americans’ crumbling bridges during his era. Implementing these tariffs is just a fulfillment of his promises. Trump is focused on keeping his promises from the campaign and paying little attention to the effects that may arise. His intentions of reviving the American industry maybe good, but the effects of imposing Section 232 maybe catastrophic not only to the Steel industry but also to the economy as a whole.[Deardorff, A. V. (2016). Terms of trade : glossary of international economics. Singapore: World Scientific.] Most of the analysts have urged Trump to change his decision as it will result in a number of negative effects to the country. The consumers and manufactures especially the car industry will be the highly affected parties of the industry. The increased cost of production The US car manufacturing industry is most likely to suffer from the imposition of Section 201 since it does not source everything from the domestic market. The cost of production will increase as the manufacturers will have cater for the increased prices of steel. The increase the cost of raw materials will reduce USA's competitiveness in the international market as they will be producing less due to increase in production costs. It should also be noted that the production costs of any product always influences the selling price of the product and also its supplies. Increase in the production cost will lead to a general hike in the selling price of most products a factor that will compel consumers to import finished products. Increase in cost of production will also interrupt the demand patterns in the country. Increases in production cost will cause an increase in the cost of goods and thus decrease in amounts demanded. These changes will affect the supply patterns as there will be excess supplies in the market. This will force the government to intervene in an attempt to reduce the prices of the excess supplies. The government will be forced to inqu...