A Comparative Cost Disadvantage Driven By Foreign Competition

Abstract

This study focuses on the impact of foreign physical steel imports on the output of the US steel industry. This industry faces a comparative disadvantage in costs and from reduced utilized capacity in steel making. The strong desire of many foreign steel producers to export steel to the US lucrative market led to their plant modernization with the associated economies of scale. This led to steel import surge in America. The imposed trade restrictions had mixed outcomes. The domestic steel output is modeled as function of steel imports and from the size of the economy addressed by shipments. The OLS estimate of steel imports is insignificant and this could be explained by the ineffectiveness of the various instituted trade instruments, from increased foreign prices of steel, and from depreciated dollars at some points in time during the period in study. As expected the measure of the economy—shipments variable has a positive impact on steel production.