TOKYO -- Business executives around the world are holding their breath, waiting to see how the U.S.'s newly inaugurated administration fleshes out the kind of protectionist policies that Donald Trump crowed about while on the campaign trail.
In this article, we look at how protectionism has affected the U.S. steel industry.
Why steel? Two reasons: First, some key trade-related officials in Trump's administration have close ties with the industry.
In his former capacity as deputy trade representative under Ronald Reagan in the 1980s, Robert Lighthizer, the nominee for U.S. trade representative, pressured Japan into voluntarily limiting exports.
Wilbur Ross, picked for commerce secretary, invested in the U.S. steel industry, then led its realignment.
Dan DiMicco, expected to be a key Trump adviser, is a former chief executive officer of Nucor, the U.S.'s biggest steelmaker.
These individuals are expected to decide on basic trade policy. Their new prominence in Washington implies that the kind of crowbar Lighthizer used on Japan more than 30 years ago is likely to be used again.
The second reason is that U.S. steel stands apart from most other industries in that it has repeatedly benefited from anti-dumping duties and voluntary export controls. So looking into this industry might provide valuable insight.
Japan first introduced voluntary limits on steel exports to the U.S. as early as 1959. After the launch of the World Trade Organization made it difficult for the U.S. to "pressure" other countries into introducing voluntary export controls, Washington has frequently turned to anti-dumping duties and safeguard measures.
According to Nippon Steel & Sumitomo Metal, there are 45 items now either being slapped with U.S. anti-dumping duties or under investigation for the possible imposition of such duties. The major target of these duties has shifted from Japan to China, but the mechanism remains the same: high duties on imports to limit their entry into the U.S.
As a result of these measures, Chinese steel exports to the U.S. dropped to a negligible 900,000 tons last year.
So how did these measures impact the U.S. steel market? One result is that steel buyers in the country pay the world's highest prices for the stuff. Hot rolled steel sheet, used in automaking, costs a little over $500 per ton in China and Southeast Asia, where prices are the cheapest in the world. In the U.S., the price is nearly $700.
"The price difference is about $150, and this represents the cost of limiting imports," a steel industry insider said.
The U.S. consumes about 100 million tons of steel in a year, so carmakers and other steel buyers are paying an extra $15 billion a year, then passing on this added cost to consumers.
In 2006, U.S. automakers actually opposed anti-dumping duties on steel.
Another question to ask: Did protecting U.S. steelmakers improve their competitiveness?
The answer seems to be "no." In 1970, three U.S. steelmakers were among the world's top 10 in terms of production volume, with U.S. Steel coming in at No. 2 and Bethlehem Steel at No. 4.
But since 2000, no U.S. steelmaker has made the top 10, now filled out by Japanese, Chinese, South Korean and European companies.
Production volume is not the only factor in measuring a company's worth, but in steel industry, economies of scale --only possible with large quantities -- play an important role.
The U.S. steel industry was also slow to realign itself. While its Japanese counterpart began a wave of industrial reorganization in the 1970s, U.S. steelmakers waited until 2000 to earnestly realign. This long hesitation was likely the result of protected companies having little to fear from intensifying global competition.
Furthermore, in the development of advanced materials, such as electrical steel sheet, Japanese and European steelmakers have led the way; their U.S. counterparts have lagged.
In the short term, protectionist measures can help companies, even whole industries, survive. In the long run, however, the protected industry puts stress on related industries as well as on consumers and brings no particular benefits to the domestic industry.
Japan has seen the same scenario play out on the farm. After decades of protection, the country's agriculture sector cannot seem to find any growth in its future.
Here is the big question: Can Trump and his cronies be convinced about the futility of protectionism?