Trigger Prices Protect the U.S. Steel Industry Summary

  • Last updated on November 10, 2022

The trigger price mechanism provided temporary assistance to the U.S. steel industry as steelmakers attempted to withstand challenges from foreign steel suppliers.

Significance

Pressured by President Carter, the U.S. steel industry accepted the TPM in February, 1978, and agreed to withdraw antidumping cases. Because U.S. producers thought they could compete successfully with Japanese mills if Japanese steel prices reflected true costs, the reference price was pegged to Japanese production cost. It was generally acknowledged that this would enable the less efficient European producers to sell in the United States at prices below their own production costs, but it was believed that such a development would not harm the U.S. producers. Steel industry;trigger price mechanism

By the spring of 1978, the TPM was in place. It was initially successful both in deterring imports and in forcing price increases on imported steel. Imports of steel, which had reached a high of 21.2 million tons (18.1 percent of the U.S. market) in 1978, immediately declined to 17.5 million tons in 1979. With U.S. producers operating at 91 percent of capacity, the domestic industry saw operating profits reach the highest levels in years.

Nevertheless, the TPM did not succeed in providing relief for long. Since imported and domestically produced steel could not be used interchangeably, the TPM caused average domestic steel prices to rise by only about 1 percent in 1979, not enough of an increase to provide the U.S. industry with a complete recovery. Moreover, the Japan-based reference price gave European firms more of an advantage than anticipated and eroded both the Japanese and the domestic share of the U.S. market.

These developments, together with an increase in the foreign exchange value of the dollar, prompted U.S. Steel to file a massive antidumping suit against European Community (EC) suppliers in March of 1980. In retaliation, the U.S. government immediately suspended the TPM, which had been designed to serve as an alternative to such blanket suits. Stimulated by threats of retaliation by the EC, the U.S. government and steel manufacturers reached an accord in October, 1980, that reinstated the TPM with significantly higher trigger prices as well as special provisions for quantitative import restrictions in the event of future import surges.

Despite the revitalized TPM, after an initial decline imports once again began to rise, influenced in part by a strong U.S. dollar on the foreign exchange markets. The strong dollar made it easier for foreign steel suppliers to sell steel at prices below the reference level. Some European suppliers began to sell steel in the United States at prices below the trigger level on the presumption that they could withstand TPM scrutiny. The domestic industry soon was operating at about 60 percent of capacity. At least ten major plants closed, and industry employment fell to 285,000 in 1981 from 403,000 in 1970. The steel industry’s cries for protection once again arose, and threats of suits aimed at alleged subsidization of the industry in Western Europe and certain other countries reemerged.

Fearing yet another collapse of the TPM, the U.S. government itself initiated seven antidumping and countervailing duty investigations against European mills in November, 1981. At the same time, the government desperately tried to convince foreign suppliers to cut back their shipments and increase prices to the U.S. markets. In February, 1982, the seven largest U.S. steel firms filed 110 charges of unfair trading practices (with three million pages of documentation) against forty-one competitive steel suppliers in eleven countries. Those cases deemed to warrant investigations covered about $2 billion in trade, or about 20 percent of U.S. carbon steel imports in 1981. Once again, the TPM was suspended in retaliation as the investigations were initiated.

The EC reacted angrily, complaining of discrimination and harassment, and Japanese suppliers, no longer restrained by the TPM, immediately increased their shipments to the United States. By this time, it had become clear that the TPM was unable to provide any long-term protection for the domestic industry. Consequently, discussions were initiated in an attempt to reach a compromise with European suppliers. The U.S.-EC Steel Arrangement of 1982 was reached, setting limits for steel imports from the EC and voiding the antidumping investigations.

The collapse of the TPM convinced the U.S. steel industry that government intervention alone would not be enough to ensure survival and profitability. In response, capital spending and plant maintenance budgets were cut, nonsteel assets sold, white-collar staff reduced, nonunion salaries and benefits slashed, and major steelmaking facilities closed. Such moves signaled a substantial structural adjustment and slimming down by the U.S. steel industry, driven in part by the failure of the TPM to provide protection from imports in newly price-sensitive global and domestic markets. Steel industry;trigger price mechanism Trigger price mechanism, U.S. steel industry

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Hogan, William Thomas. Economic History of the Iron and Steel Industry in the United States. Lexington, Mass.: Heath, 1971. Though a bit dated, this book is a good source of background information concerning the development of the steel industry.
  • citation-type="booksimple"

    xlink:type="simple">Howell, Thomas R., et al. Steel and the State: Government Intervention and Steel’s Structural Crisis. Boulder, Colo.: Westview Press, 1988. Provides an extensive look at the global steel industry and the development of modern trade practices and policies. Chapters on each of the major steel producing nations, as well as developing countries, are especially informative.
  • citation-type="booksimple"

    xlink:type="simple">Jones, Kent Albert. Impasse and Crisis in Steel Trade Policy. London, England: Trade Policy Research Centre, 1983. An informative discussion of the development and resolution of conflicts in the steel trade. Provides a good look at government trade policy.
  • citation-type="booksimple"

    xlink:type="simple">Tiffany, Paul A. The Decline of American Steel: How Management, Labor, and Government Went Wrong. New York: Oxford University Press, 1988. An informative and detailed report of the factors behind the decline of the U.S. steel industry. Useful because it provides a fairly balanced look at the many different factors contributing to the economic problems of the industry.
  • citation-type="booksimple"

    xlink:type="simple">U.S. Federal Trade Commission. Bureau of Economics. The United States Steel Industry and Its International Rivals: Trends and Factors Determining International Competitiveness. Washington, D.C.: Federal Trade Commission, 1977. This staff report by the Bureau of Economics is a technical, in-depth examination of the economic structure of the U.S. steel industry.
  • citation-type="booksimple"

    xlink:type="simple">Warren, Kenneth. Big Steel: The First Century of the United States Steel Corporation, 1901-2001. Pittsburgh: University of Pittsburgh Press, 2001. A history of U.S. Steel, from its early days as the leading producer of American steel to its weakened position in the latter part of the century.

Volkswagen Opens the First Foreign-Owned U.S. Auto Plant

Workers Buy Weirton Steel

Categories: History Content