US Steel Prices Rise In Response To Protective Tariffs

by Mike Godfrey, Tax-News.com, New York

12 November 2002

News that steel prices are rising in the United States is bad news for consumers and the automotive sector; but it is only what could be expected following President Bush's imposition of protective tariffs on steel imports last March. The tariffs were said to be intended to give the high-cost US steel industry a last chance to reform itself in the face of growing foreign competition - but that's like giving a last drink to an alcoholic.

In the current round of contracts between steelmakers and US auto makers, increases are averaging 5% to 10%. The tariffs aren't the only factor to tighten up the high-quality steel market - one of the main US suppliers, LTV Corporation, went belly-up last December, leaving the remaining three majors, headed by US Steel, with more market clout.

This year, about one third of the automotive sector's intake of steel of 77 million tons was up for renegotiation; more contracts are set to expire in 2003, and the steel sector is hoping that next year will see a return to profitability. But if the steel tariffs had any goal apart from political expediency, it should have been to encourage, or rather, force, consolidation and modernisation in the steel industry, and there is little or no sign of that.

The competitve advantage handed to US plants by the tariffs has allowed them to increase capacity utilisation, and at higher prices. It has also had the perverse effect of increasing imports, said to be up 8% up on last year. The Commerce Department announced recently that, after an initial fall, imports have been increasing since June and have topped 23.9 million metric tons so far this year, up from 22.1 million a year ago.

To some extent this is because US steel-makers have been able to produce finished steel products in competition with foreign suppliers again, meaning that their purchases of foreign semi-finished products are up. Major firms such as US Steel and Bethlehem Steel import this type of steel from Korea and Latin America because it is cheaper to do so than to make it or buy it from a domestic competitor, although US Steel had to join the ranks of those lobbying for exemptions from the new tariffs in order to maintain its right to do so.

Harder to explain, though, are rises in import volumes for various products that are subject to the tariffs. Imports of hot-rolled steel, often used in appliances and machinery, have jumped 40%, while imports of coated sheet steel, often used in specialty product applications, rose 30%. Foreign producers, apparently, have switched to types of steel not covered by the tariffs, or have reduced their prices to compensate for the tariffs, seemingly finding it easy to compete against the US producers even with the additional tariff handicap.

The US tariffs have come in for widespread criticism, and are the subject of WTO proceedings brought by the EU, Japan and seven other countries. The US has already partially back-tracked on the tariffs by agreeing more than 700 exclusions which cover about a quarter of the targeted steel imports. Further movement was promised by the administration after the mid-term congressional elections, and the Republicans' unexpectedly strong showing will raise hopes of further back-tracking on the original tariffs.

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