Tariff Rate Quotas on U.S. Steel Imports: The Implications on Global Trade and Relative Competitiveness of Industries

In March 2002, the United States imposed tariff-rate quotas (TRQs) of about 30 percent on most imported steel above set quotas. This measure is expected to reduce steel exports from East Asian countries, particularly from Japan and Korea. At the same time, the U.S. action is likely to harm its automobile, metal products, and other related industries by raising the cost of intermediate input. In this paper, we evaluate the effects of U.S. steel protection on the economic welfare, steel trade, and sectoral output and unit cost of the United States and its trading partners over the period 2002-2005. The preliminary results indicate that although the U.S. welfare increases in 2002- 2003, it declines in 2004-2005 mainly because the price of steel increases in the U.S. market. U.S. steel imports from East Asian countries and the EU decline by 2.5-2.8 percent, whereas those from Canada and Mexico increase by 2.2 percent, thus largely offsetting the fall in the total U.S. steel imports. The protection causes output contraction in the steel-consuming industries in the United States and output expansion in those industries in most of the U.S. trading partners, but these effects are extremely small. These results suggest that the impact of the U.S. imposition of TRQs is minimal.