It seems that Bush’s plan to protect the countries steel producers failed! In 1991, Bush placed a tariff on all imported steel to help protect his major supporter, the steel industry. Unfortunately for the steel industry, “(steel consumers) immediately set about cutting their use of steel so as not to spend more on it than they would have had to spend had they been able to buy the imports.” American steel producers raised the prices of steel thinking they had a monopoly on the market. Consumers simply consumed less while the consumption budgets didn’t grow leaving the steel industry with a surplus and no buyers. This action of protectionism only helped to move along the decline of steel market in the U.S.

For more read, “The Evolution of Protectionism”


Bart said...

This is the same thing that has happened to the sugar market. When the govt. steps in and places price floors or ceilings the whole free market system falls apart, if look on anything that has been sweetened you will usually see that it is sweetened with corn syurp instead of sugar, because the price floors set by the govt.

June said...

It seems like one of the first things learned in microeconomics is that free trade produces the most stable and strong economies. Why are so many people interested in inhibiting free trade. Is it political, or is the issue more complex than it seems?

Dr. Tufte said...

Most analysts see this as a cold poltical calculation. Bush wasn't interested in support from steel producers, but rather votes from steelworkers. The steel tariff is usually seen as a way to buy West Virginia's electoral votes (which Bush won in 2004).