Using safeguard protection to raise domestic rivals’ costs

The primary impact of import protection is to raise foreign firms’ costs. We show that poorly designed protection also raises domestic rivals’ costs. We find that simultaneously taxing both the upstream and downstream import markets results in a very small expansion in industry-wide downstream production. We use the US’ recent steel safeguard action as a case study. Our analysis sheds new light on the controversial steel slab restrictions. We show that the primary effect of the steel tariffs is distributional. In particular, the steel tariffs will mainly benefit minimills and will provide relatively small benefits to traditional mills.