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The Iron(y) in Steel Protectionism



By Scott Lincicome and Gabriella Beaumont‐​Smith, Cato Institute


In the midst of high inflation, the federal government continues to build on bad policies for the U.S. housing market. Instead of addressing current rules creating an inflexible environment for building houses, the government imposed new duties on steel nails, a crucial component for home construction. These duties will increase the cost of construction, further contributing to scarce housing and higher home prices.

Last month, the United States International Trade Commission (ITC) predictably determined that the U.S. nail industry has been injured by “dumped” and “subsidized” steel nails from India, Oman, Sri Lanka, Thailand, and Turkey. The decision paves the way for new taxes (duties) on those imports to protect American nail‐​makers and, in the process, provides several important lessons about the problems with the U.S. “fair trade” (antidumping and countervailing duty) laws that facilitate these measures.

Under U.S. law, a product is considered dumped if a foreign company is selling it, “at less than fair value.” And if a foreign government subsidizes the production of a good sold in the U.S., these subsidies may also result in the product being sold “at less than fair value.” American businesses can therefore petition the U.S. government to correct these “unfair practices” under antidumping and countervailing duty law. Antidumping and countervailing duty investigations are notoriously complicated; for a complete timeline of the investigations, see here. For Cato’s more detailed work on AD/​CVDs see here, here, here, here, here, and here.

The ITC’s recent decision on steel nails came as no surprise because, as Cato scholars have frequently discussed, the U.S. trade remedy system all but ensures that duties will result from domestic industry petitions for trade remedy protection. Yet the decision remains noteworthy for several other reasons, all of which reveal some of the system’s many flaws.

First, the case provides a clear example of how trade remedies duties (like most protectionism) rarely produce a vibrant and competitive domestic industry and instead simply motivate protected companies and workers to seek even more government support. In this case, the new AD/CVD orders join myriadduties already imposed on imported steel nails (some reaching almost 324 percent!). Now, about half of the top 20 U.S. trading partners for steel nails will be subject to additional tariffs.

Second, and relatedly, the case shows how the U.S. government systematically ignores consumer or broader “public interest” impact when imposing trade remedy taxes on imports. Here, new duties will, especially when combined with previous duties, put upward pressure on U.S. prices of a key construction input (nails), right in the middle of an American “housing crisis.” Indeed, a recently published Cato Institute study showed that trade remedies duties on construction materials, including nails, increased domestic prices and likely contributed to rising home prices. Artificially increasing the price of steel nails during a time of high inflation is nonsensical and unfair. Yet, U.S. law prevents the ITC from even considering these effects when determining whether to impose new duties.

Third, the case shows how “injury” to a domestic industry is often blamed on foreign competition but is actually the result of bad U.S. policy. In particular, the U.S. government has spent the last four years working to increase the domestic price of steel (nails’ only major input) via tariffs under Section 232 of the Trade Expansion Act of 1962. As discussed here last year, the tariffs quickly increased U.S. steel prices far above the prices of the same materials abroad, thus undermining steel‐​consuming manufacturers’ competitiveness versus their foreign counterparts. In this case, the tariffs made American‐​made nails more expensive—a fact that Mid Continent Nail (the company petitioning for these AD/​CVDs on nail imports) itself confirmed. In particular, the company experienced direct cost increases of 25 percent resulting from the Section 232 tariffs, 19 percent of which it passed on to their customers.

Instead of simply removing the Section 232 tariffs and instantly boosting the competitiveness of companies like Mid Continent, the U.S. government has, at the company’s request, imposed new duties on its foreign competitors, thus, pushing the tariffs’ harms downstream to American consumers, likely to be seen throughout the economy more broadly.

That companies like Mid Continent can successfully lobby for tariff protection after finding themselves injured by similar U.S. trade measures demonstrates not only the perils of “cascading protectionism” (tariffs on inputs leading to tariffs on downstream products), but also the Kafkaesque nature of U.S. trade policy today. One can’t really blame Mid Continent for using the AD/CVD system to protect its bottom line, but we can and should blame the laws that let them get away with it (and, in the process, paper over bad U.S. policies inflicting the real harms to the company).

Root and branch reform of the system is long past due. 


Scott Lincicome is the director of general economics and Cato’s Herbert A. Stiefel Center for Trade Policy Studies. Gabriella Beaumont‐​Smith is a policy analyst at the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.