Executive Summary

Once again, policy makers are debating the wisdom of imposing quotas to protect the U.S. steel industry from imports and to help it maintain production capacity and employment domestically. A related initiative targets financial support for steelworkers through new taxes on steel-consuming industries. Legislation -- the "Steel Revitalization Act of 2001" (SRA) -- has been introduced in the Congress. In addition the Bush Administration is considering whether to self-initiate an investigation under Section 201 of the Trade Act of 1974, which likely would result in the imposition of quotas on steel imports.

While much attention is being paid to the need for assistance to protect employment in the steel industry, only passing attention is being paid to the broader effects such protection would have on the rest of the American economy. In part this is because hard estimates of these impacts are not readily available. At the request of the Consuming Industries Trade Action Coalition Foundation, The Trade Partnership has estimated the impacts on the economy generally, and on steel-consuming industries specifically, of pending proposals to protect the steel industry: (1) the SRA (quotas on imports of steel raw materials and finished steel products, and a 1.5 percent steel sales tax), and (2) quotas on finished steel imports. The findings are as follows:

· The SRA would cost more jobs than it would preserve. The SRA would protect no more than 3,700 steel jobs, compared to losses in steel-consuming sectors of the American economy ranging from 19,000 to 32,000 jobs. The job losses in steel-consuming industries would be five to almost nine times as great as the job gains in the steel industry.

· The SRA comes with a heavy price tag for consumers and the economy generally. The SRA's quotas would essentially tax consumers $1.35 billion to $2.89 billion a year, and cost as much as $732,000 per job protected in the steel industry. This amounts to roughly 10 times the average employment cost (wages and benefits) of a steelworker in 2000. Over the five-year term of the SRA, consumers generally would be socked with an effective tax bill totaling $6.75 billion to $14.5 billion.

· The impact of quotas on finished steel products alone remains significantly negative for steel-consuming industries. Roughly two to three times as many workers in steel-consuming industries would lose their jobs as would be protected upstream in the steel industry.

· The costs to consumers generally of quotas on imports of finished steel products are significant. Total consumer costs would range from $1.33 billion to $2.34 billion a year, or as high as $565,000 per steel job protected, for the cutbacks suggested by the SRA.

· More severe import reductions (say, of 50 percent) would preserve almost 13,000 steel jobs, but at an annual cost to consumers of $5.8 billion. In just five years, the cost of such a jobs program would amount to $22 billion. Put another way, this type of jobs program would require steel-using industries (and ultimately consumers as a whole) to pay $2.2 million per job over a five-year period.