Is Chinese Steel Hurting the US Economy?

This blog post by Timothy Terrell originally appeared on December 30, 2009 on the now-discontinued Market Process Blog, published by the Initiative for Public Choice and Market Process at the College of Charleston.


 

Today the United States International Trade Commission imposed tariffs on Chinese steel pipe, largely used in the oil and gas industry. Urged on by the US steel industry and an associated labor union, the tariff follows an earlier duty imposed on Chinese tires.

Clearly, the US steel industry and its workers will enjoy a short-term benefit from this policy. Long-term, it could make the industry less competitive. This would not be the first time. In the early 1800s, British iron producers used an advanced manufacturing process that made British iron superior to American-made iron. Rather than improve their techniques to compete, American iron producers reacted by appealing to Congress for protective tariffs against British iron producers. In 1842, Congress did as they asked, but British iron continued to be imported. In fact, as economic historian Larry Schweikart noted in his book, The Entrepreneurial Adventure, “When tariffs ended and protection was greatly reduced, iron production in America increased. …[B]y 1860 American mills had become fully competitive with the British, in part because the end of protection eliminated the old charcoal smelters and obsolete mills, leaving the newer anthracite smelters in a position to meet the demand for the newer nonrail products.”

It’s also clear that the consumers of steel pipe will suffer from this policy, including the oil and gas industry and all those who use their products (i.e. every consumer in the US). Each job saved in the steel industry could cost far more than the employee earned. However, in the well-rehearsed story of protectionism, even if the total losses to the victims greatly exceed the total gains to the winners–which is likely–the diffuse nature of those losses means that the victims are politically weak. The concentrated gains to a few provide the political impetus for tariffs.

By itself, this tariff won’t spell the end of the US economy. But it is another small injury which, when matched by similar efforts by other protectionists, regulators, and interventionists of various stripes, can produce “a death by a thousand pricks.”