The Politics Of Trade In Steel
Essay by 24 • April 5, 2011 • 1,335 Words (6 Pages) • 1,243 Views
The Politics of Trade in Steel
1. Does the World Trade Organization in this case represent a loss of U.S. national sovereignty? Why do you think the WTO sided with the European Union?
I don't think the Work Trade Organization represents a loss of U.S. national sovereignty. The WTO in this case is simply doing its job - overseeing international trade and enforcing the agreement that all the WTO member nations including the United States signed.
I think the World Trade Organization might have sided with the European Union because they felt that the U.S. had gone too far with the tariffs. They probably thought that if they did allow the EU to impose counter tariffs on the U.S. that could ultimately damage trade between the two countries and start a trade war, the U.S. might come to their senses. I believe that this was an attempt on the World Trade Organization's part to bring a truce between the two countries.
2. If all the tariffs on international trade in steel were removed, and subsidies to steel exporters around the world were banned, who would this benefit? Who would lose from such action?
The net beneficiary of such a move would be steel consumers worldwide. They would enjoy the most competitive prices industry can offer.
There are two potential losers from such action. First, all domestic producers who are not competitive would lose because they would be out-competed by low-cost import. Second, all exporters who previously enjoyed local subsidies would lose because their governments cannot subsidize their production.
3. Research where / now.
a. Are there any big changes in steel industry?
b. Is it a big change to support what's going to happen to steel industry in the future?
Basically, there are 2 major things happening in steel industry: globalization and consolidation between steelmakers. China as a leading consumer of steel also heavily influences the industry. The recent article from The Economist below actually answers both questions and gives great examples :
As recently as six years ago, while investors were still in thrall to a dotcom bubble that had yet to burst, steel was derided as one of the last bastions of the "old" economy. Many firms in the industry were state-owned or heavily protected by governments keen to preserve assets deemed vital to national interests. Globalization had left the steel business behind. It is a measure of the changes that have swept the business since the internet bubble popped that last week Arcelor, a company created through a 2001 merger of the top French, Spanish and Luxembourg steelmakers, made a hostile bid of C$4.4 billion ($3.8 billion), in cash, for Dofasco, Canada's leading steel firm. This week, Arcelor's offer was trumped by a friendly bid of Ђ3.5 billion ($4.1 billion) by Germany's ThyssenKrupp. Arcelor says it is reviewing its options; it may yet weigh in with another offer.
There are further signs that the industry has changed. Arcelor's reasons for going hostile are partly ascribed to pique that it lost out earlier this year to Mittal, the world's leading steel company, in a bid for control of Kryvorizhstal, Ukraine's former state-owned steel firm. Mittal prevailed with an offer of $4.8 billion. And both Arcelor and Mittal recently lost out to a domestic bidder for a slice of Erdemir, a Turkish state-owned steel firm. The past year has also seen a host of smaller deals, such as that announced by Mittal last week to acquire some assets from Stelco, a bankrupt Canadian steel producer.
This wave of mergers, acquisitions and asset sales has helped to revive the fortunes of the world's steelmakers by reducing the chronic overcapacity that had troubled the industry for decades. This has brought new and more effective leadership into a business that was a byword for bad management. The privatization of assets in former Communist countries in Eastern Europe and other developing economies has boosted the opportunity for consolidation.
By far the most important factor behind steel's revival, however, is China's booming economy. China's soaring demand for steel sent prices spiraling upwards until recently: benchmark hot-rolled coil, which sold for as little as $200 a ton in 2001, broke the $600 barrier in 2004, though prices have since fallen back. The boom in prices ushered in a time of profits and high valuations in a business where bail-out and bankruptcy had previously been the norm. But two problems still confront steelmakers.
The first is that their improving lot has not gone unnoticed by those who sell the raw materials that feed the world's steel mills. Suppliers of iron ore grouped together to demand hefty price rises of 72% for their products in March this year, even after obtaining a 19% rise last year. Suppliers of coking coal, also vital to the steelmaking process, insisted on even greater hikes. Early forecasts suggest that iron-ore suppliers could want another big price rise - perhaps as much as 20%
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