David Levin's Entry For The 2004 Moffatt Prize in Economics
Trade in steel and iron between the United States and Taiwan is an important issue for many reasons; Taiwan is a major exporter of iron and steel products, while U.S. imports of steel from Taiwan, among other foreign countries, has been increasing significantly in recent years. The U.S. and Taiwan are also major trading partners in other commodities and goods. Additionally, the United States obviously has an interest in protecting its domestic steel industry, but American consumers also have a significant interest in this matter. As a result, the safeguarding measures and the manner in which the ensuing dispute(s) are resolved may have significant effects on not just the steel industries and consumers of the involved nations, but also may spill over into other industries and the overall national economies as well (e.g. retaliatory measures, future growth of trade (particularly free trade) between these countries, etc.).Total U.S. steel exports decreased from $79,045,455 in 1989 to $52,201,962 in 2001, representing a 33.96% decrease. This decline is probably the result of the continuing inefficiency of U.S. steel producers, which makes them unable to compete with Taiwanese and other foreign steel producers. Total U.S. steel imports from Taiwan increased from $133,446,203 in 1989 to $353,458,689 in 2001, representing an increase of 164.87%. There are spikes in the imports of most categories between 1999 and 2001, peaking in 2000. These spikes are most likely related to the surge in the U.S. economy and the subsequent recession. It is not likely that the dramatic increase in imports in these categories was the result of stockpiling in anticipation of the tariffs.
Economic theory predicts that after the imposition of the tariffs, the price of imported steel in the U.S. will now be more expensive relative to domestically produced steel. The aggregate U.S. offer curve will shift (inward if concave up, outward if concave down), which results in an increase in the U.S.'s aggregate terms of trade and a decrease in Taiwan's aggregate terms of trade. The overall domestic price of steel in the U.S market will increase, while the domestic price of steel in Taiwan may or may not decrease. The volume of trade between the U.S. and Taiwan, particularly in steel, will decrease. Domestic U.S. steel producers and their employees will benefit from the tariffs, while U.S. steel-consuming businesses and their employees, U.S. consumers and Taiwanese steel producers and their employees will be hurt by the tariffs. Taiwanese steel-consuming businesses, their employees and Taiwanese consumers may benefit from the tariffs (if the domestic price of steel in Taiwan decreases).
The existing data appears to be consistent with the predictions of economic theory. Between 2001 and 2002, total U.S. steel imports from Taiwan decreased from $353,458,689 to $300,075,791, representing a 15.1% decrease in total imports. Total U.S. steel exports to Taiwan also decreased, from $52,201,962 in 2001 to $46,996,053 in 2002, a 9.97% decrease. Additionally, more American workers employed in the non-steel-producing industry lost their jobs than the total number of people employed by the U.S. steel-producing industry. American consumers are being forced to pay at least an extra $2 billion per year due to inefficiencies caused by the recent steel tariffs, and national income has decreased by at least $500 million per year. There is also a strong negative correlation, -0.838735, between the tariff rate imposed on a category of steel products and the percent change in the volume of U.S. imports from Taiwan of the same category from 2001 to 2002.
The use of forward contracts and the recent recession experienced by both Taiwan and the U.S. could be alternate causes of the events outlined above. While it is likely that these two factors have played a role, it is unlikely that they are the sole cause, and there is evidence that the recent tariffs have had a significant role in bringing about the changes mentioned earlier.
Be Sure to Continue to Page 2 of "Trade in Iron and Steel Between the U.S. and Taiwan ".
