Intermediate Microeconomics and Its Application 12th Edition by Walter Nicholson,Christopher Snyder

Exercise 28

The Saga of Steel Tariffs
On June 20, 2008, the U.S. International Trade Commission ruled that China was "dumping" steel products in the United States, thereby paving the way for the imposition of "penalty tariffs" on imported carbon steel pipes and other products. This situation represents just the latest round of protectionist policy for the U.S. steel industry.
Using Every Protectionist Trick
It is hard to find an industry that has had the special protections from imports that have been enjoyed by U.S. steel producers over the past 40 years. Protectionist measures have at various times included (1) import quotas, (2) minimum price agreements with exporters, (3) "voluntary" export restraints from nations that export steel to the United States, (4) a bewildering variety of tariffs, and (5) any number of lawsuits claiming? "unfair" trade practices (the steel pipe case being the latest example). In addition, U.S. steel producers have been the beneficiaries of a number of government loan guarantee and subsidy programs.
Rationale for Protection
The most often heard rationale for protection of the domestic steel industry is that the industry is "vital" to the security and continued strength of the U.S. economy. In wartime, it is claimed, we would not want to be in the position of needing to import all of our steel. More recently, a new twist was added by claiming that U.S. steel producers are at a disadvantage vis-à-vis their foreign rivals because they do not have the newest technology. Temporary tariffs, such as those instituted by the Bush administration in 2002, it was claimed, would give the industry some "breathing room" and a chance to catch up.
Costs of Protection
Whatever the rationale for protection, it is clear that the welfare costs of such programs are high. For example, estimated annual tariff revenues from the 2002 tariffs were about $900 million.1 Balanced against this was an estimated loss of about $2.5 billion in consumer surplus together with domestic gains in producer surplus of $700 million. Overall, then, there was a net welfare loss of about $900 million per year from the tariff. This amounted to about $180,000 per year for each of the estimated 5,000 jobs "saved" in the domestic steel industry.
Claims and Counter Claims of Dumping
"Dumping" in international trade regulations refers to selling a good at below its costs of production. Goods that are found to have been "dumped" can be subjected to punitive tariffs that can sometimes raise their prices above those charged by domestic producers. In 2008 the United States and the European Union brought dumping charges against China for underpricing some kinds of steel pipe. Tariffs of up to 40 percent were imposed on some items. In a (not unexpected) retaliation, China in 2013 sought to impose similar tariffs on high-performance stainless steel tubes from the European Union (and possibly the United States). Hence, the latest installment of the long-running saga of steel tariffs will now be fought out in a variety of international tribunals that focus on "expert" analysis of dumping claims.
Why would a firm (or nation) sell a good at below cost? Wouldn't this violate the long-run analysis provided in this chapter? (see Chapter 12 for further insights on this matter)