The Impact of US's Tariff on the Steel Industry

Research question: What is the impact of US's tariff on the steel industry in countries such as Japan, Russia, South Korea and Brazil?

Protectionism is the economic policy of promoting favoured domestic industry through the use of high tariffs or other regulations to discourage imports. A tariff is a tax placed upon imports (and/or export goods), sometimes called customs duty. A revenue tariff is set with the intent of raising money for the government. A protective tariff, usually applied to import goods, is intended to artificially inflate prices if imports and "protect" domestic industries from foreign competition. This latter is the method applied by the US, which is mentioned in the article.

Fig.1

As illustrated in Fig.1, the domestic price before trade is Po with quantity produced at Qdo. After trade, which leads to a shifting out of the supply curve, the price falls to the world level of Pa, where quantity consumed is Qa, of which only Qda is produced domestically. Domestic producer have lost production and their revenue has fallen to Pa*Qda. Therefore, some countries feel the need to protect their own industries or production lines from foreign competition by imposing tariff. When a tariff is imposed, supply curve is shifting in from Sd + f to Sd+f+t, leading to a drop in quantity consumed at Qb, which means domestic producers are increasing production to Qdb. Also, their total revenue will rise to Pb*Qdb. At that time, the government will receive the revenue from the difference of Qb and Qdb multiplied by price Pb-Pa. The consumption will decrease because there is less of the product and the product is set a higher price. Indeed, foreign exporters will receive Qb-Qdb times Pa. The tariff is more effective the more elastic the demand curve is.

In this case, the US's steel industry has to face with fierce competition with Japan, Russia, South Korea and Brazil, which leads to a loss of revenue for the US producers from Po*Qdo to Pa*Qda (Refer to Fig.2). For example, "Japan, the world's second-biggest steel producer after China, exported 2.2 million tones of steel to the United States in 2001." Therefore the US decided to impose "30% tariffs on a wide range of steel imports", blaming "cheap imports for 31 bankruptcies." As a result, supply shifts in from S Japan, Russia, South Korea, Brazil to S Japan+ Russia +South Korea +Brazil+ tariff, increasing US revenue from Pa*Qda to Pb*Qdb and decreasing the amount of imports dramatically from Ma to Mb.