Monday, June 6, 2016


It goes without saying that steel is an important material in the global economy as it is used in construction of countless items every day. The price of steel will then affect the global economy as a whole by changing the costs of production which changes the amount of good which get manufactured in the world. For comparison, oil reserves are in multiple locations around the world, no one country has an absolute advantage in oil reserves. The United States has the largest amount currently (according to the latest information from the Energy Information Administration) with just over 15% of global oil production in 2014. No one country has an absolute advantage over oil production and the improvements in technology which have allowed fracking to be less expensive over the last two years has been one major advantage in decreasing oil prices along with the increase of Saudi oil production.

Steel is similar to oil in that it has reserves around the world, but the demand for steel has dropped significantly over the last few years, leaving China with its large subsidies for steel production as producing over half the world’s steel, a significant difference from 10 years ago. The United States government is calling now for China to end its steel subsidy which will increase the ability of other countries to produce more steel profitably.

If China follows the United States’ demands and decrease their production of steel we will see the price of steel rise, which will protect the 150,000 Americans currently working in steel. If American steel production decreased as a result of China’s exports to the United States the question of how many American jobs will be lost is currently under debate. An increase in the cost of steel would directly affect construction by making it less profitable to build new buildings, which employs over 6,000,000 Americans. Keeping the cost of steel low means we can make more buildings which employs people in construction, and even just a 5% drop in American construction workers from an increase in the cost of steel would be twice the number of Americans currently employed in steel production. On top of the effect to Americans employed in construction, another 1.5 million Americans are employed in car manufacturing which uses steel as a factor input and would decline if the cost of steel were to increase because more expensive cars will lead to fewer cars being bought.

This puts American politicians in a place of choosing who we support more or don’t. We can protect our steel workers or we can protect our auto and construction workers. Instead of the politically popular choice of lambasting China for increasing production it would be more beneficial for American workers to ensure we have programs available so people in industries which have a decrease in employment can go get retrained to work in industries which are not as vulnerable to imports. By helping more people become specialized they will get better wages and have more job security. We will also end up with a higher GDP. This does cost the American government money in the short term, but the increase in GDP will mean that we can have higher tax revenues in the future which will help the program pay for itself. Paying to subsidize steel production will not have the same long-term positive effect on GDP.


World Steel
Statista iron ore by country
Auto Alliance

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