"Steeling" the World: Economic and Antitrust Implications of Steel Industry Cartels as Alternatives to Trade Protectionism

Article excerpt

I. INTRODUCTION

As recently as a year ago, the business conditions facing the American steel industry were, by any standard, extremely grim. Steel prices had reached their lowest point in almost twenty years and showed little sign of recovery.1 These depressed prices pushed many U.S. steel producers to the breaking point; between 1998 and 2001, thirty-two American steel companies filed for bankruptcy protection.2 Three of these bankrupted companies were among the five largest U.S. steel producers: Bethlehem Steel, LTV, and National Steel.3 The effect of low steel prices on steel workers was equally dramatic; between 1990 and 2001, job losses in the U.S. steel industry averaged nearly five thousand per year.4

In response to this domestic steel "crisis," on March 5, 2002, after months of lengthy internal debate and intensive lobbying by major American steel companies and steelworker unions, the Bush Administration announced a wide-ranging regime of protective tariffs and quotas for the U.S. steel industry.5 The decision included a three-year schedule of tariffs, rangIMAGE FORMULA5

ing from 8% to 30% on a wide range of imported steel products from a variety of countries.6 Another major element of the plan was a quota system designed to allocate shares of the U.S. import market among major foreign steel producers.7 While the plan technically was conditional on a competitive restructuring of the U.S. steel industry and subject to periodic official review, industry observers generally agreed that the plan represented the "most dramatically protectionist step of any president in decades."8

While American steel companies and their unions initially were guardedly enthusiastic about the tariff announcement, reaction outside the U.S. steel industry was swift and overwhelmingly negative.9 Media commentators criticized the decision as a political betrayal of sound economic and foreign policy.10 Overseas reaction was even stronger, as several foreign governments responded to the decision with retaliatory tariffs on both steel and non-steel products from the U.S.11 In addition to these classic "trade war" countermaneuvers, the governments of numerous nations initiated formal complaint procedures against the U.S. for the steel tariffs at the World Trade Organization (WTO) in Geneva.12

In the wake of the tariff announcement, the effects of the tariffs on the U.S. steel industry have been mixed, while the tariffs have remained a persistent sore point in diplomatic and trade relations between the U.S. and other nations. While market prices of some steel products have, by some IMAGE FORMULA7

measures, risen by as much as 60% and some U.S. steel operations have slowly begun to rehire laid off workers, most large steel manufacturers have remained unprofitable since the tariff announcement.13 Indeed, some evidence has indicated that the tariffs are actually making the long-term problems of the steel industry worse by giving the weakest and least efficient steel companies barely enough new revenue to resist market exit and by encouraging new inefficient production capacity to come online.14 Meanwhile, the tariffs have significantly increased diplomatic tensions with allies and trading partners of the U.S., who have made the tariffs an important issue in discussion of other international topics.15 In response to this criticism, the Bush Administration has quietly begun to scale back some of the tariffs, recently exempting about 25% of the thirteen million tons of steel imports originally hit by the duties.16 Unsurprisingly, these exemptions have fostered significant dissatisfaction among U.S. steel companies and their political allies.17

Because of the mixed economic and diplomatic success of the U.S. steel tariffs, a retrospective analysis of the decision to enact them seems both appropriate and timely. At first blush, an ex post analysis of the Bush Administration's steel policy decision seems constrained by the simple binary choice of whether protective steel tariffs should or should not have been implemented. …