JC History Tuition Online - What is the steel trigger price mechanism - Global Economy Notes

What is the steel trigger price mechanism of 1978?

Topic of Study [For H2 History Students]: 
Paper 1: Understanding the Global Economy (1945-2000)
Section B: Essay Writing
Theme II Chapter 2: Reasons for problems of the global economy

Find out more about the protectionist policies set by past administrations in the USA that affected the steel industry [Video by MarketWatch].

Historical background: Intensified competition
In the post-WWII years since the 1950s, world steel exports have increased tremendously. Yet, the key exporter USA faced a decline. One possible reason raised by steel producers is traced to ‘dumping‘.

According to the Word Trade Organisation (WTO), ‘dumping’ refers to a practice in which the “price of a product when sold in the importing country is less than the price of that product in the market of the exporting country”. It is arguably a destructive policy that undermines the trading partner’s industry-specific interests.

Yet dumping is more often perceived as being harmful to the importing country. At its worst, price discrimination in international trade may be a weapon of economic warfare. An exporter may sell goods cheaply in a foreign market with the intent to drive out competition or to prevent the establishment of a rival industry. After competition has been eliminated, the exporter may raise prices to the detriment of the same consumers who had temporarily benefited from bargain prices.”

An excerpt taken from “The Reinstated Steel Trigger Price Mechanism: Reinforced Barrier to Import Competition” by Garry P. McCormack.

The ‘steel’ problem worsened as the world entered a decade of high oil prices in the 1970s. As a result of the twin oil shocks, inflation contributed to higher steel prices, which forced businesses to explore alternative materials like plastic and aluminum to replace steel in the production of appliances and cars. Consequently, the demand for steel declined.

As early as 1959, the United States imported more steel than it exported. By 1970, the U.S. share of world steel production had plummeted to 20 percent, down from 50 percent in 1945. Steel production then fell from 130 million tons in 1970 to 88 million tons in 1985.

An excerpt taken from “Understanding Globalization: The Social Consequences of Political, Economic, and Environmental Change” by Robert K. Schaeffer.

The Eagle Strikes Back: Steel trigger price mechanism
In response to the American steel industry’s claim that foreign producers were ‘dumping’ steel in the US market, the Carter administration introduced the trigger price mechanism (TPM) in 1978. The TPM sought to identify steel imports sold at unfairly low prices, prompting legal intervention.

There were three aims of the TPM:

  • Support the enforcement of existing anti-dumping laws
  • Promote higher import prices and lower import volume to stimulate the domestic steel industry
  • Avoid the use of undesirable protectionist policies

True enough, the price of imported steel increased by 10% a year later. At the same time, US steel exports rose by 3.1 million tons and employment of steel workers increased by 12400.

Yet, there were shortcomings for the use of the TPM. One such consideration was the legality of selling steel below the trigger price, which led to a large influx of European steel in 1981.

It was legal to sell at less than the trigger price as long as steel was not sold at less than fair value. Apparently, many firms decided to do just that, as shown by the European requests for preclearance. Depreciation of European currencies relative to the U.S. dollar lowered European production costs relative to trigger prices. […] European Economic Community (EEC) steel producers increased their tonnage sold in the United States by 63 percent.

An excerpt taken from “Economic Commentary: The Steel Trigger Price Mechanism” by Gerald H. Anderson.

In January 1982, the Commerce Department processed 132 anti-dumping and countervailing duty cases filed by 7 domestic firms. Subsequently, the TPM was suspended. Notably, US protectionist policies took other forms as well, such as the imposition of steel tariffs under the Reagan administration.

What can we learn from this article?
Consider the following question:
– How far do you agree that the rise of trade protectionism was the result of American policies in the 1970s?

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