Question

In 2017 , shortly after President Trump took office, the U.S. Department of Commerce considered imposing tariffs on European steel companies it accused of dumping steel on the U.S. market. An article in the Wall Street Journal quoted Secretary of Commerce Wilbur Ross as asserting, "A healthy steel industry is critical to our economy and manufacturing base, yet our steel industry today is under assault from foreign producers that dump and subsidize their exports." What is dumping? If the United States imposes tariffs on imports of steel from Europe, briefly explain who is likely to gain and who is likely to lose.

Short answer

Dumping is when a country or firm exports a product at a price lower than in its domestic market. If the U.S. imposes tariffs on steel imports from Europe, domestic steel producers are likely to gain due to improved competitive pricing, while consumers and firms that use steel, and European steel producers could potentially lose due to increased costs and reduced sales respectively.

Step-by-step solution

Definition of Dumping

Dumping in economic terms refers to a situation where a country or firm exports a product at a price that is lower in the foreign importing market than the price in the exporter's domestic market. The intention behind this practice can range from penetrating a foreign market to getting rid of surplus stock.

Possible Gains from Imposing Tariffs

If the U.S. imposes tariffs on steel imports from Europe, certain groups are likely to gain. Primarily, domestic steel producers would benefit as the foreign steel becomes more expensive due to tariff, making domestic steel more competitively priced. This could result in increased sales, potentially leading to growth and job creation in the domestic steel industry.

Possible Loses from Imposing Tariffs

On the other hand, there are also likely to be losers from the imposition of tariffs. These would primarily be those who consume or use steel as an input in their production process. These companies might need to pay more for steel (whether they buy domestically produced steel or imported steel with the added tariff), thereby increasing their costs. This could potentially lead to price increases for the end consumer or decreased profits for the companies. In addition, European steel producers could lose out on revenue due to decreased sales.

Key concepts

Dumping

In the world of international trade, "dumping" represents a complex issue. Simply put, it occurs when a company exports a product at a lower price than it charges in its home country market. Imagine a steel producer in Europe selling steel at a lower price in the United States than in Europe. This is done with strategies like flooding the international market to gain a competitive edge.
There are different reasons why companies engage in dumping.

• They may want to increase their market share in the new market.
• They might also want to offload excess supply they can't sell in their home country.

Dumping is often perceived negatively because it can harm domestic industries, which is why measures like tariffs are considered to protect local businesses.

Domestic Steel Industry

The domestic steel industry refers to companies within a country that produce steel and steel products. Within the United States, this industry is pivotal not only for everyday metal needs but also for critical sectors like infrastructure and national defense.
A robust domestic steel industry is often seen as a backbone for economic prosperity.

• It provides countless jobs and has a large influence on local economies.
• Additionally, it fuels other manufacturing sectors that rely on steel as a material.

When foreign producers sell steel below market value, domestic producers may struggle with increased competition, potentially threatening these jobs and the broader economic impact of the industry.

Import Tariffs

Import tariffs are taxes imposed by a country on goods brought in from another country. When the U.S. considered tariffs on European steel, the aim was to make imported steel more expensive and less attractive compared to U.S. steel.
Tariffs can serve several purposes:

• They protect domestic industries from foreign competition.
• They enable domestic industries to compete on a more level playing field.

By raising the cost of imported products, tariffs can encourage consumers to buy locally-produced goods. However, the added costs due to tariffs often end up affecting consumers or companies relying on those imported goods.

Economic Consequences of Tariffs

While tariffs can benefit the steel industry, they have broader economic implications. When tariffs are introduced, various groups experience different impacts.

• Domestic steel producers may benefit through reduced competition and increased sales, possibly leading to more jobs.
• However, industries that use steel might face increased production costs, as all available steel becomes more expensive.
• These higher costs may then be passed down to consumers in the form of increased product prices.

Moreover, international tensions may rise. A trade partner impacted by tariffs might retaliate with tariffs of their own, upsetting international trade relations. In summary, while intended to protect local industries, tariffs can trigger a chain reaction affecting everyone from producers to consumers.