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Stephen Olson at Chinese Development Institute Conference

 

 Clyde Prestowitz giving presentation to CDI...

 

Steve Olson teaching trade negotiations at the Mekong Institute...

 

Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

Anti-Trust and Competition Policies

Levelling the Playing Field: Anti-Dumping and the US Steel Industry

Click Here to Download the Full Report in PDF Format

The world steel market is perhaps the most distorted industrial market in the world. To achieve economic and political objectives, many countries have pursued industrial policies aimed at nurturing a steel industry with trade protection and subsidies.

In contrast, the United States steel industry has generally not been the recipient of such special treatment. The U.S. economy is open and subsidies have been very limited, especially when compared to those of other major industrial countries. In the 1970s and 1980s, the U.S. steel industry had serious competitive problems, but $50 billion in new investment has built an industry with some of the highest productivity levels and lowest costs in the world.


Success in today's highly distorted world steel market, however, often has less to do with investment, adoption of new technology and increased labor productivity than with the industrial and trade policies of foreign governments. The combined result of the numerous steel industrial policies is that the world has tremendous excess production capacity in steel. In such a situation, the high-fixed cost structure of the steel industry encourages fierce price competition during downturns. The involvement of governments, which press for keeping production lines open and workers employed, greatly accentuates this tendency. Dumping - sales in export markets below cost or sales below the price in the home market - is the frequent result.

The United States has frequently used antidumping laws, which counter dumping with offsetting duties, and countervailing duty laws, which counter unfair subsidies, to level the international playing field in steel. Since 1980, there have been 46 successful antidumping (AD) cases involving steel and 27 countervailing duty (CVD) cases. In response to the recent surge of steel imports, the U.S. steel industry has filed a number of new AD/CVD cases. These complaints allege, with considerable factual support, that companies from a number of countries, including Russia, Japan, South Korea, and Brazil are again receiving subsidies or are engaged in injurious dumping in the U.S. market, which are illegal under both U.S. and international law. If these allegations are upheld by U.S. authorities, offsetting duties will be imposed to counter the injurious impact of these practices on U.S. steel manufacturers and workers.

However, the economic desirability of imposing AD/CVD duties has been questioned. Some argue that the United States would be better off simply accepting dumped and subsidized products as "gifts to consumers." While this line of analysis is superficially attractive, it cannot withstand rigorous analysis.

The long term costs to producers and workers of failing to counter the dumped and subsidized steel in the U.S. market substantially outweigh the transient consumer benefits arising from short term price cuts. Without an assurance that action can and will be taken against trade distorting and illegal commercial practices, investment in and production of steel and many other manufactured products in the United States will become an unattractive proposition. Over time, the losses to the U.S. economy in terms of lost production, investment, and high-wage jobs, mount to painful levels.

This paper will demonstrate this point by using a dynamic partial equilibrium economic model to simulate the economic impacts of unrestrained steel dumping on the U.S. economy. Based upon historical experience, injurious dumping is modeled as an intermittent or periodic practice that is employed by foreign companies in only some years. Also based upon historical experience, scenarios for 5 percent to 15 percent price cuts due to dumping were considered. The results suggest that if the United States had not imposed antidumping duties in the 1990s, the economic costs of dumping would have outweighed the benefits of low prices to consumers within several years. In 1997, the total net costs of failing to counter dumping - lost economic activity, lower wages, etc. - would have totaled between $71 and $338 million, depending upon the level of dumping.

Based upon this simulation and related analysis, the paper concludes that the United States has a strong interest in countering dumped and subsidized steel imports. The alternative of simply accepting these market distortions would harm the U.S. industrial base, erode high-wage employment, and impose considerable net costs on the U.S. economy. Additionally, political support for free trade in the United States would likely erode in response to an obviously unlevel playing field.

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