Protection, steel, and the law of unintended conseqeunces


Matthew Stevens has an interesting piece in the AFR on steel products and protection. It is a great example of the unintended (but predictable) consequences of poorly thought out government intervention in international trade.

In summary, China introduced export tariffs on its own exports of ‘basic’ steel (called hot rolled coil or HRC). HRC is an input into a variety of coated steel products. China introduced these export restrictions as a result of western fears that China was going to swamp world steel markets with cheap products.

Now obviously, Chinese firms that use HRC to produce coated steel products do not have to pay the export tariff. They buy local at the ‘tariff free’ price. This means that they can undercut other firms on the international market for the coated steel products!

The result?

[T]he EU wants a protective 50 per cent duty slapped on Chinese coated-steel imports …

So, the cheap producer can’t win. Nor can the consumer. And of course, hitting the cheap producer at the input stage just pushes the ‘problem’ to the next stage of production. Where does it stop? At whatever stage of production where it is impossible to import the product from China.

One Response to "Protection, steel, and the law of unintended conseqeunces"
  1. Years ago when I visited Poland I found very interesting business established on the Polish/German border.

    The Poles had huge duties on imported cars, but much lower duties on imported parts. The business was simple. It consisted of a disassembly and packing factory on the German side of the border. There was a companion reassembly factory on the Polish side. Luxury (and stolen cars) were disassembled on the German side, imported as parts by the Poles, and reassembled!

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