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Part 3: The Global Trade and Investment Environment
Research Task
Use the globalEDGE™ website (globaledge.msu.edu) to
complete the following exercises:
1. You work for a pharmaceutical company that hopes
to provide products and services in New Zealand. Yet
management’s current knowledge of this country’s
trade policies and barriers is limited. After searching
a resource that summarizes the import and export
regulations, outline the most important foreign trade
barriers your firm’s managers must keep in mind
while developing a strategy for entry into New
Zealand’s pharmaceutical market.
globalEDGE.msu.edu
2. The number of member nations of the World Trade
Organization has increased considerably in recent
years. In addition, some nonmember countries have
observer status in the WTO. Such status requires
accession negotiations to begin within five years of
attaining this preliminary position. Visit the WTO’s
website to identify a list of current members and
observers. Identify the last five countries that joined
the WTO as members. Also, examine the list of
current observer countries. Do you notice anything in
particular about the countries that have recently
joined or have observer status?
CLOSING CASE
Chip Somodevilla/Getty Images News/Getty Images
American Steel Tariffs
In March 2018, President Trump imposed a 25 percent tariff on imports of foreign steel into the United States (and a 10 percent
tariff on aluminum imports). In justifying the steel tariff, Trump argued that a strong domestic steel industry was necessary for
the national security of the United States. In 2017, some 36 million tons of steel were imported into the U.S., while 81.6 million
tons were produced domestically. Import penetration into the U.S. had increased from about 23 percent of total steel consumption in 2007 to 31 percent in 2017. The U.S. exports about 2 million tons of steel per year. There were roughly 140,000 people
employed in the U.S. steel industry in 2018, and around 6.5 million employed in industries that consumed steel, including construction, machinery, and automobiles.
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CHAPTER 7: Government Policy and International Trade
238
This was not the first time the U.S. steel industry had been the beneficiary of import tariffs. The industry has a long history of
tariff protection. Some critics complain that this is linked to the importance of steel producing states such as Indiana, Pennsylvania, and Ohio in U.S. presidential elections. In 2002, the Bush administration placed tariffs ranging from 8 percent to 30
percent on imports of foreign steel. The U.S. exempted its NAFTA partners Canada and Mexico from these tariffs. The Bush
tariffs were lifted nine months later after significant opposition from businesses in steel-consuming industries, who claimed that
higher steel prices were resulting in significant job losses. In 2016, the Obama administration imposed punitive tariffs as high
as 500 percent on imports of some steel products from China, arguing that Chinese producers were dumping excess steel production in the United States at below the costs of production. Due to the Obama tariffs (which remain in place), by the time
of Trump’s announcement, China accounted for only 2 percent of U.S. steel imports. The largest steel exporters to the United
States in 2017 were Canada, South Korea, Mexico, and Brazil.
The Trump administration argued that this round of steel tariffs would help revitalize the struggling U.S. steel industry. Critics
countered that the result would be higher prices for steel consumers and job losses in those industries. The early evidence is
mixed. Domestic steel production in the U.S. increased by around 7 percent in the first year after the tariffs were imposed, while
imports fell around 10 percent. The prices of U.S. steel products increased by around 20 percent in 2018 and profits for U.S.
steel producers improved. Flush with cash, there have been several announcements regarding planned expansions in capacity
from domestic steel producers, including Nucor, Steel Dynamics Inc., and U.S. Steel Corp. These plans would add about 8.3
million tons of production to the U.S. steel industry, increasing its capacity by 14 percent.
On the other hand, some steel consumers have pushed back, pointing out that higher steel prices are hurting their businesses.
General Motors, a major steel consumer, announced in November 2018 that Trump’s tariffs on steel (and aluminum) would cost
it over $1 billion a year. The company announced plans to shut several plants and eliminate 15,000 jobs (although higher steel
prices were not the only factor here). Similarly, the iconic American motorcycle manufacturer Harley Davidson announced that
its 2018 profits were wiped out by higher metal costs due to Trump’s tariffs. The company has announced plans to move some
production overseas as a way of avoiding the high costs of metals in the United States and supporting foreign sales. Consistent
with these example, recent academic studies have suggested that through the middle of 2019, the higher steel and aluminum
tariffs were associated with 0.6 percent fewer jobs in the manufacturing sector than would have been the case without the tariffs.
That translates into about 75,000 fewer jobs in industries that use steel and aluminum to make other products. On the other
hand, growth in employment in the steel-producing industry amounted to no more than 1,000 jobs over the same time period.
Sources: Bob Tita and Alistair MacDonald, “Foreign Steel Keeps Flowing into the U.S. despite Tariffs,” The Wall Street Journal, December 5,
2018; International Trade Administration, Steel Imports Report: United States, June 2018; Alistair MacDonald, “Tariffs Roil Global Steel Trade, Creating Winners and Losers,” The Wall Street Journal, November 29, 2018; Doug Mataconis, “After Trump’s Tariffs, American Steel Industry Faces
Downturn,” Outside the Beltway, January 19, 2019; Ruth Simon, “A Tale of Two Steel Firms and Their Diverging Paths under Trump’s Tariffs,”
The Wall Street Journal, February 10, 2019; “Tariffs on Steel and Aluminum Are Creating Some Winners,” The Economist, August 9, 2018; G. C.
Hufbauer and B. Goodrich, “Steel Policy: The Good, the Bad, and the Ugly,” Peterson Institute: International Economics Policy Briefs, January
2003; L.Cox and K. Russ, “Steel Tariffs and U.S. Jobs Revisited,” Econofact, February 6, 2020.
Case Discussion Questions
1. The steel industry has a long history of asking for, and
getting, tariff protection from foreign competitors.
Why do you think this is the case?
2. Who pays the tariffs on imports on foreign steel into
the United States? How does the payee deal with the
additional costs that the tariffs represent?
3. What was the motivation of the Trump administration
in placing tariffs on imports of foreign steel in 2017?
Who benefits from these tariffs? Who loses? In your
estimations, are the tariffs and net positive or negative
for the American economy?
Design Element: naqiewei/DigitalVision Vectors/Getty Images
Endnotes
1. For a detailed welfare analysis of the effect of a tariff,
see P. R. Krugman and M. Obstfeld, International
Economics: Theory and Policy (New York:
HarperCollins, 2000), Ch. 8.
2. Christian Henn and Brad McDonald, “Crisis
Protectionism: The Observed Trade Impact,” IMF
Economic Review 62, no. 1 (April 2014), pp. 77–118.
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3. World Trade Organization, World Trade Report 2006
(Geneva: WTO, 2006).
4. The study was undertaken by Kym Anderson of the
University of Adelaide. See “A Not So Perfect
Market,” The Economist: Survey of Agriculture and
Technology, March 25, 2000, pp. 8–10.
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239
Part 3: The Global Trade and Investment Environment
5. K. Anderson, W. Martin, and D. van der
Mensbrugghe, “Distortions to World Trade: Impact
on Agricultural Markets and Farm Incomes,” Review
of Agricultural Economics 28 (Summer 2006),
pp. 168–94.
6. J. B. Teece, “Voluntary Export Restraints Are Back;
They Didn’t Work the Last Time,” Automotive News,
April 23, 2012.
7. G. Hufbauer and Z. A. Elliott, Measuring the Costs of
Protectionism in the United States (Washington, DC:
Institute for International Economics, 1993).
8. Sean McLain, “American Cars in Japan: Lost in
Translation,” The Wall Street Journal, January 26,
2017.
9. Robert E. Scott. “Growth in US-China Trade Deficit
Between 2001–2015 Cost 3.4 Million Jobs,”
Economic Policy Institute, January 31, 2017.
10. Alan Goldstein, “Sematech Members Facing Dues
Increase; 30% Jump to Make Up for Loss of Federal
Funding,” Dallas Morning News, July 27, 1996, p. 2F.
11. N. Dunne and R. Waters, “U.S. Waves a Big Stick at
Chinese Pirates,” Financial Times, January 6, 1995,
p. 4.
12. Peter S. Jordan, “Country Sanctions and the
International Business Community,” American Society
of International Law Proceedings of the Annual Meeting
20, no. 9 (1997), pp. 333–42.
13. “Brazil’s Auto Industry Struggles to Boost Global
Competitiveness,” Journal of Commerce, October 10,
1991, p. 6A.
14. For reviews, see J. A. Brander, “Rationales for
Strategic Trade and Industrial Policy,” in Strategic
Trade Policy and the New International Economics, P.
R. Krugman, ed. (Cambridge, MA: MIT Press, 1986);
P. R. Krugman, “Is Free Trade Passé?” Journal of
Economic Perspectives 1 (1987), pp. 131–44; P. R.
Krugman, “Does the New Trade Theory Require a
New Trade Policy?” World Economy 15, no. 4 (1992),
pp. 423–41.
15. “Airbus and Boeing: The Jumbo War,” The Economist,
June 15, 1991, pp. 65–66.
16. For details, see Krugman, “Is Free Trade Passé?”;
Brander, “Rationales for Strategic Trade and
Industrial Policy.”
17. R. Paul Krugman, “Is Free Trade Passé?” Journal of
Economic Perspectives 1, no. 2 (Autumn 1987),
pp. 131–44, https://www.jstor.org/stable/
1942985?seq=1#page_scan_tab_contents.
18. This dilemma is a variant of the famous prisoner’s
dilemma, which has become a classic metaphor for
the difficulty of achieving cooperation between
self-interested and mutually suspicious entities. For a
good general introduction, see A. Dixit and B.
Nalebuff, Thinking Strategically: The Competitive Edge
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19.
20.
21.
22.
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25.
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29.
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31.
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35.
in Business, Politics, and Everyday Life (New York:
Norton, 1991).
Note that the Smoot-Hawley Act did not cause the
Great Depression. However, the beggar-thy-neighbor
trade policies that it ushered in certainly made things
worse. See J. Bhagwati, Protectionism (Cambridge,
MA: MIT Press, 1988).
World Bank, World Development Report (New York:
Oxford University Press, 1987).
Frances Williams, “WTO—New Name Heralds New
Powers,” Financial Times, December 16, 1993, p. 5;
Frances Williams, “GATT’s Successor to Be Given
Real Clout,” Financial Times, April 4, 1994, p. 6.
W. J. Davey, “The WTO Dispute Settlement System:
The First Ten Years,” Journal of International
Economic Law, March 2005, pp. 17–28; WTO Annual
Report, 2016, archived at www.wto.org/english/res_e/
publications_e/anrep16_e.htm.
Information provided on WTO website, www.wto.org/
english/tratop_e/dispu_e/dispu_status_e.htm.
Data at www.wto.org/english/tratop_e/adp_e/
adp_e.htm.
World Trade Organization, World Tariff Profiles 2017
(Geneva: WTO, 2017).
OECD (2018), Agricultural Policy Monitoring and
Evaluation 2018, OECD Publishing,
Paris, https://doi.org/10.1787/agr_pol-2018-en.
World Trade Organization, Annual Report by the
Director General 2003 (Geneva: WTO, 2003).
Anderson et al., “Distortions to World Trade.”
World Trade Organization, Annual Report 2002
(Geneva: WTO, 2002).
S. C. Bradford, P. L. E. Grieco, and G. C. Hufbauer,
“The Payoff to America from Global Integration,” in
The United States and the World Economy: Foreign
Policy for the Next Decade, C. F. Bergsten, ed.
(Washington, DC: Institute for International
Economics, 2005).
World Bank, Global Economic Prospects 2005
(Washington, DC: World Bank, 2005).
“Doha Development Agenda,” OECD Observer,
September 2006, pp. 64–67.
“The WTO at 25: A Message from the Director
General,” WTO.org, accessed February 27, 2020, and
archived at https://www.wto.org/english/news_e/
news20_e/dgra_01jan20_e.htm.
Peter Nicholas, “Trump Warns Auto Executive on
Moving Business Overseas,” The Wall Street Journal,
January 24, 2017.
“Punitive Tariffs Are Approved on Imports of
Japanese Steel,” The New York Times, June 12, 1999,
p. A3.
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