Trade barriers on steel and aluminium have had negative effects not only on end-users but also on the economy of the regions that have imposed them, namely the EU and the United States. This is the conclusion of a study commissioned by Assofermet, the association representing Italian distributors of scrap, raw materials and steel products, and carried out by Bocconi University, entitled "The Macroeconomic Effects of Temporary Trade Barriers in the European Union" and presented yesterday in Milan. Present were the vice president of Assofermet, Cinzia Vezzosi, the president of Assofermet Acciai, Paolo Sangoi, lawyer Massimo Campa and Stefano Riela, professor of European economic policy at Bocconi University.
Paolo Sangoi commented, "Any protectionist measure always has a double implication. The positive one that somehow supports the producers is contrasted by that of the downstream market, which is constituted by final consumers who are forced to suffer disruptions due to limited availability of goods and high prices." He continued by stating, "A measure that affects steel and aluminium in the form of finished products is unjust and harmful, while what is upstream and what is downstream is treated differently. Steel producers and end-users are placed on different levels and treated differently, with the latter being penalized when they are confronted with competitors from foreign countries which are not regulated by the same rules."
The president of Assofermet Acciai recalled that the European safeguard on steel entered into force in 2018 and was confirmed for a further three years in July 2021. He said Assofermet has always said it opposes these measures, but today more than ever the association aims to make its voice heard at the European Commission, considering the very serious economic repercussions that the conflict in Ukraine will have. "Wanting to limit the analysis to our sector, in the absence of immediate interventions by the Commission aimed at easing the restrictions or temporarily suspending them, the impact on the market will be violent and will favour a situation of shortage and uncontrolled price increases," Mr. Sangoi said. He then expressed the hope that the results of the study carried out together with Bocconi University "will push European law-makers to rewrite the rules of free trade, considering the needs not only of producers but also of the downstream market."
Stefano Riela commented on the study stating that its goal was to provide an estimate of the effects of temporary trade barriers on gross domestic product (GDP) and inflation in the European Union. Attention has focused on the effects of antidumping duties on iron, steel and aluminium products. In particular, the research showed that removing all EU antidumping measures on iron, steel and aluminium in place in the first quarter of 2021 would have increased real GDP by 0.4 percent (about €16 billion). Ceteris paribus, the cumulative effect in one year could be up to €54 billion in 2022. Moreover, the estimates imply that removing the measures in place in January 2021 would have curbed inflation by approximately 0.25 percent in a year. Without those temporary trade barriers, the inflation rate in the EU in 2022 would be 3.65 percent instead of 3.90 percent. These results show that: higher import prices lead to higher domestic inflation; while tariffs induce a switching of expenditure towards domestic goods, they also reallocate market share toward less efficient domestic producers, lowering aggregate productivity; higher domestic prices reduce real income, lowering physical capital investment; demand for domestic goods actually decreases; lower aggregate demand causes a decline in real economic activity; and that the decline in investment and productivity propagates the negative effects of higher tariffs over time.
In conclusion, protectionist measures targeting intermediate inputs result in higher prices paid by downstream industries, leading to a contraction of economic activity. Therefore, the prolonged use of tariffs and/or their wider application would lead to considerable and lasting negative aggregate effects, slowing the post-pandemic recovery. Riela pointed out that similar results were achieved by a US Congressional study on the effects of Section 232 tariffs that was published in May 2021.