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Explore and discuss the implementation, by the US President George Bush, of tariffs imposed on the steel industry between March 2002 and December 2003.

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Introduction

Steele Introduction: In this coursework, I intend to explore and discuss the implementation, by the US President George Bush, of tariffs imposed on the steel industry between March 2002 and December 2003. A tariff is one form of a trade barrier, which can be imposed by a country's government, in an effort to protect domestic producers of a given commodity from foreign competition. In some cases, it may be referred to as an import duty or a customs duty. A tariff leads to an increase in prices, with the overall effect being that of a restriction on imports. A tariff is introduced as a tax imposed on a good. This is likely to raise the final price of the good for the consumer. This increase leads to a subsequent fall in demand causing a consequent reduction in the volume of imports. However, internal sales are boosted as consumers opt to purchase domestic substitutes for the commodity in question. The diagram below shows how the market for a commodity (e.g. steel) is affected by the imposition of a tariff. ...read more.

Middle

This would enhance their competitive appeal with regard to imports. However, at this juncture, he chose not to subsidise the industry, as this would cost the government further, thus detracting from the available budget for expenditure (over $30 billion had already been spent on quotas and subsidies). The second, more viable option involved the introduction of a tariff on imports. Bush pursued this option as it not only protected the industry, but also brought in additional revenue from tax (refer to area UYZV on Fig.1). It can be said that the reasoning behind President Bush's decision to impose the tariffs had been a long time in the coming. Tracing back to 1976, an ailing steel industry approached the White House and the then President, Gerald Ford, in an attempt to secure import protection to revive the US industry. Twenty-six years later the situation remains virtually unchanged. The repercussions, which ensued from the implementation of the tariffs by President Bush in March 2002, had effects on steel production and distribution in both domestic and global markets. ...read more.

Conclusion

President Bush's decision to put these tariffs in place was made in an effort to protect the domestic steel market. However, it had the reverse effect because even though the steel producers were benefiting from the tariff, the rest of the industry was suffering from high prices. Due to the fact that the steel producers in the US were inefficient, prices rose, making it impossible for steel distributors to buy and sell the steel at a reasonable profit. In fact, a greater number of jobs were lost in the market for steel distribution than would have been lost in the market for steel production, had the tariffs not been introduced. This shows that Bush's method of protectionism was not as effective as he claimed it would be. Although it did salvage many of the old sunset steel producers, in the long run they would still have dwindled as many other countries have a comparative advantage over the US, in steel production. Inexpensive factors of production such as cost effective labour and machinery, in countries like Russia and China, reduces the ability of other countries to compete with their low prices and the amount that they produce. ...read more.

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