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Estimated Economic Effects of Proposed Import Relief Remedies for Steel

Executive Summary

As part of the Section 201 Investigation on steel imports initiated by the Bush Administration, each of the six U.S. International Trade Commission (ITC) Commissioners recommended on December 7, 2001 that the President impose a range of tariffs and quotas on steel imports into the United States. The covered imports amount to approximately 74 percent of total volume of steel imports. Steel-consuming industries have predicted that the recommended tariffs and quotas would force many of them out of business and others to lay off manufacturing and other workers in an economy that can ill-afford more job losses. They predict recommended remedies would result in more harm than benefit to the economy.

At the request of The Consuming Industries Trade Action Coalition (CITAC), Trade Partnership Worldwide, LLC analyzed the potential impact of the ITC recommendations on steel-producing, steel-consuming and other sectors of the U.S. economy. The study estimated the effects of two scenarios: imposition of weighted average tariff recommendations for all products of 9.2 percent on imports other than Canada and Mexico of the products on which the ITC found injury (low tariff scenario), and imposition of average tariffs, weighted by the value of imports, of 20.7 percent on those imports (high tariff scenario).

The results are as follows:

• Steel-consuming workers have every reason to be concerned about their future. Higher costs of steel inputs and greater competition from imports of steel-containing products resulting from the proposed remedies would lead to a loss (across all sectors in the United States) of between 36,200 jobs (low tariff scenario) and 74,500 jobs (high tariff scenario). Losses of steel-consuming sector jobs would range from 15,300 to 30,600.
• Under either scenario, eight jobs would be lost for every steel job protected.
• Every state loses out under the proposed remedy recommendations, including states in the "Steel Belt."
• As draconian as these remedy recommendations are, they would not restore the U.S. steel industry to profitability. Despite the large drops in imports from the tariff increases, the tariff restrictions affect the volume of domestic production to a much greater extent than price. Under the low tariff scenario, domestic steel prices would rise just 0.2 percent as volume of output increases 2.9 percent; under the high-tariff scenario, domestic steel prices would increase 0.4 percent and volume of output, 5.9 percent.

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• The remedy recommendations would not help steel workers very much either. The proposed remedies would protect between 4,375 steel jobs (low tariff scenario) and 8,900 steel jobs (high tariff scenario), at a cost to American consumers every year of $439,485 to $451,509 per steel job protected.
• The proposed remedies would slash imports. Import volumes would decline by 18.5 percent under the low tariff scenario and by 35.9 percent under the high-tariff scenario. Import prices would increase by 9.1 percent to 20.6 percent, respectively.
• Higher prices and other inefficiencies imposed by the proposed remedies would force consumers to pay between $1.9 billion and $4.0 billion a year, and decrease U.S. national income by $500 million to $1.4 billion a year at a time when policy makers are looking for every way possible to boost national income growth.
• Steel-consuming industries would face greater competition from foreign producers, as foreign producers have access to more competitively-priced steel inputs than U.S. steel consumers. The high tariffs imposed on steel imports would raise the price of these inputs for U.S. steel consumers but would not raise prices for foreign producers of steel-containing products. As a result, imports of finished steel products, like electric motors, construction materials, appliances and autos, would increase.

About the Model

Trade Partnership Worldwide, LLC employed a state-of-the-art computable general equilibrium (CGE) model to estimate the potential impacts of the proposed remedies on the U.S. economy generally, and the steel industry and steel-consuming industries specifically. CGE models are the tools of choice for assessment of the economic impact of regional and multilateral trade agreements. They allow for the assessment of the effects on broad sectors of the economy of protecting one sector, including interactions between sectors that may result.

1. The model we used, based on the Global Trade Analysis Project (GTAP), reflects the interactions across the entire U.S. economy, rather than just within the protected industry (i.e. steel) and its immediate customers. The linkages between sectors are both direct (like the input of steel in the production of automobiles) and indirect (like the use of mining inputs into steel, which feed indirectly into automobiles, and the use of both energy services and steel in the production of automobiles). The model contains 15 specific sectors: food; other primary goods; mining; steel; non-ferrous metals; fabricated metals; chemicals, rubber and plastics; refineries; automobiles and parts; other transport equipment; electrical equipment; non-electrical equipment; other manufactures; construction; and services. Trade Partnership Worldwide benchmarked the model's data for national income, trade flows and related data to the year 2000. In modeling the impact of the proposed remedies, we take into account the current economic climate. Hence, the model includes job creation and destruction (i.e. unemployment) as potential gaps are created between labor earnings and the value of labor output across sectors. Throughout, we assume that Canada and Mexico are left off of the remedy list. Total effects across states are based on detailed BLS data on state level employment, combined with estimated effects at the national level.
2. Basic national income data came from the Global Trade Analysis Project (GTAP) data set, updated to the most recent full year, and supplemented with data from the U.S. Department of Commerce, the Bureau of Labor Statistics, the International Monetary Fund, and the American Iron and Steel Institute.
3. For example, this means we explicitly model the release of worker from the fabricated metals industry as input costs are driven up.