Research Paper on Uncertainty in The Steel Market

In today’s society, steel is a very dominant and applicable material. Whether it is used for building houses, appliances, or trade, you can see steel everywhere in the world. However, this comes with drawbacks. The steel market is causing unprecedented damage economically and ecologically across the world. With steel prices fluctuating over the past few years and an increase in carbon emissions from the production of steel, many businesses, business owners, and politicians are seeing the steel industry take a wrong turn globally and want to bring it back, but it might not be possible. The article “Exchange- commodities: Steel Market Cools as Supplies Expand” written by Bob Tita, a reporter for The Wall Street Journal on January 29, 2022, describes how the prices of steel have been changing over the past two years affecting the supply and demand of steel. Bob also introduces this factor of importing steel from other countries when the price of steel hikes in the future, as it has done in the past. In the second article “Carbon Tariffs Gain Movement-New proposals could reshape industries but also raise the risk of trade disputes” written by Yuka Hayashi and Jacob Schlesinger who are both Wall Street Journal writers explain how using tariffs can diminish the amount of steel being produced in places where carbon emissions are high.  With tariffs in place it can benefit the globe ecologically, but on the other hand, not economically as some will say.

First, there were many recent changes in the steel industry during the times of 2020-2022. Bob Tita outlines a few, such as fluctuating prices and low inventories. More importantly, a considerable change has taken place, which is an increase in imports. In 2021 many steel companies turned to importing steel because the price at which they received the precious metal from other countries was much lower. With imports in action Mark Millett, CEO of Steel Dynamics is seeing this take effect “higher steel inventories, rising imports, and falling prices”(Tita 2022). Overall, by utilizing imports, companies have increased their supply of steel and decreased the equilibrium price while increasing the equilibrium quantity.

Continuing, with the production of steel, comes bad consequences for the environment. The main consequence is greenhouse gasses. Many countries across the globe are trying to stop this effect from taking place. Governments in the U.S. and Europe are developing tariffs to decrease the number of greenhouse gasses escaping into our air. With a carbon tariff in play, producing steel domestically hurts companies. This increase in price from the tariff presents consumers with a substitute for foreign steel. The reduced price of steel in foreign countries means there is a decrease in demand for domestic steel, decreasing greenhouse gas emissions, which is what the government's goal is. If the government administers a carbon tariff on imported goods, this will increase the price and decrease purchases of steel bought from foreign countries. Additionally, decrease the supply from foreign mills because of the tariff. 

Moreover, carbon tariffs can often be referred to as Pigovian taxes. Pigovian taxes counteract negative externalities, in this case, carbon emissions. Doing so eliminates the deadweight loss that is caused by carbon emissions. With the deadweight loss abolished, the Pigovian tax increases efficiency by setting the price equal to the marginal social cost which creates a better way of distributing resources, resulting in a more socially efficient market. Accompanied by an efficient market, external costs are incorporated with the tax.  

To conclude, Steel is an important material in everyday life however, it has caused some unrest economically and ecologically. From an economic perspective, the steel market is afflicted right now because of fluctuations in price and supply.  Ecologically, steel production is producing carbon emissions at extremely high rates leading to the use of tariffs and taxes.  These tariffs and taxes are leaving the steel industry and businesses with uncertainty. The steel industry is facing remarkable challenges daily, but is still fighting.