DEMAND FACTORS, IMPORT RESTRAINTS, AND THE PROSPECTS FOR THE U.S. STEEL INDUSTRY (UNITED STATES)

The declining competitiveness of the U.S. steel industry represents a major social and political issue. Developments in the industry since 1982--unprecedented declines in U.S. shipments and operating rates, severe layoffs, record import penetration, and significant plant closures--made this issue particularly pressing in the election year of 1984. The U.S. government's response to these developments has been to seek voluntary export restraints with the major foreign suppliers to the U.S. steel market. Steel import quotas of the magnitude currently being sought (approximately 20 percent of U.S. consumption) are unlikely to reverse or retard significantly the decline of the U.S. steel industry's integrated sector. This judgment is based on projections derived from a small simultaneous model of the U.S. steel market, estimated using iterative three-stage least-squares techniques. This judgment is also based on the view that increased imports have not been the major causes of U.S. integrated producers' decline. Instead, this result stems from three forces that relate to the overall development of the U.S. and world economies as well as to intra-industry conditions. First, the steel intensity (steel consumption divided by per capita GNP) of the U.S. economy has been declining throughout the postwar period. Second, international differences in steel intensity have contributed to the emergence of a truly global steel market. Third, less capital-intensive technologies, embodied in minimill plants, have become a viable alternative to integrated techniques. Previous research on the U.S. steel industry's declining performance has emphasized two themes: the implications of the integrated sector's oligopolistic structure and the changing pattern of international cost competitiveness. While these themes assess important aspects of the industry's performance, they downplay the significance of demand-side phenomena such as steel-intensity relationships. The dissertation's econometric model was used to evaluate counterfactual hypotheses concerning the relative importance of steel-intensity relationships, international cost relationships, and import levels. These simulations suggest that demand-side factors, representing developments outside the steel industry, warrant greater consideration in analyses of the U.S. steel industry's performance and in steel-policy decisions.