Reference no: EM132835060

Please answer the opening and closing case questions from the textbook and create good multiple-choice questions with four answer choices based on the cases (1 question per each case, 2 questions in total/include the answers).

Opening Case: Is China Dumping Its Excess Steel Production?

In the 15 years up to 2015, China increased its steel production fivefold as it forged the steel products demanded by its huge boom in construction and infrastructure spending. By 2015, the country produced 800 million tons of steel a year, half of the world's annual output. However, in 2015 the bottom fell out of the Chinese domestic market for steel. The economy slowed down, and the government shifted its priorities away from massive infrastructure investments and toward boosting consumer spending. By the end of 2015, Chinese steelmakers were estimated to be producing 300 million more tons of steel a year than required for domestic consumption.

With prices for steel slumping, China's largest 101 steel firms lost over $12 billion in 2015, roughly twice what they made in profits during 2014. Not surprisingly, the Chinese are seeking to export this unwanted product, even if it is at a loss. China exported more than 100 million tons of steel for the first time in 2015, making its steel exports alone larger than the production of any other country in the world except for Japan. The prices for Chinese steel products appear to be at least 10 percent lower outside of China than within the country.

Those low-priced exports are having a devastating impact on steelmakers around the globe. American producers have responded by clamoring for action from the U.S. Commerce Department to stop what they perceive to be the illegal dumping of steel products below the costs of production. Moreover, they have argued that cheap steel from China has also persuaded producers in India, Italy, South Korea, and Taiwan to dump their excess production on the world market, further harming U.S. producers. In November 2015, the Commerce Department ruled that all of these countries except Taiwan were dumping steel and placed duties as high as 236 percent on some imports of foreign steel. In late December, the Commerce Department ruled that China was also selling corrosion-resistant steel at unfairly low prices and placed an additional 256 percent tariff on such imports. This erected a huge barrier to certain Chinese steel imports into the United States.

The European Union has been contemplating similar steps. The United Kingdom has been particularly hard hit by Chinese imports. Chinese imports now take 45 percent of the UK market for steel rebar, up from nothing in 2010. Overall, steel imports from China doubled between 2014 and 2015. The UK lost some 4,000 steelmaking jobs in the second half of 2015 as the Chinese grabbed market share. Elsewhere in Europe, the Luxembourg-based steel giant ArcelorMittal blamed dumping by Chinese firms for a $8 billion loss in 2015. In response, in January 2016, the EU placed a 13 percent tariff on imports of Chinese steel. EU steelmakers called this totally inadequate, particularly given the much large tariffs levied in the United States. For its part, the Chinese government remained unmoved. In fact, it may have added fuel to the fire in December 2015, when it cut export taxes on several types of steel, signaling perhaps that it was doubling down on a strategy to encourage domestic producers to export their surplus production rather than close mills.

QUESTION 1: Provide an overview of the current situation in the global steel market. As a steel producer from the United States, how do you feel about the dynamics described in the case? If you were a steelworker in the United States, what would be at the front of your mind?

QUESTION 2: Why would Chinese steel companies be willing to sell their product at a loss? Though it has created a negative response from the U.S. Commerce Department, discuss the possible reasons that this strategy might be pursued.

Closing Case: Sugar Subsidies Drive Candy Makers Abroad

Back in the 1930s at the height of the Great Depression, the U.S. government stepped in to support the U.S. sugar industry with a combination of subsidies, price supports, import quotas, and tariffs. These actions were meant to be temporary, but as of 2015 they are still in place. Under policies approved in the 2008 farm bill, the government guarantees 85 percent of the market for U.S. producers, primarily farmers growing sugar beets and cane. The remaining 15 percent is allocated for imports from certain countries at a preferential tariff rate. The government also sets a floor price for sugar. If the price falls below the floor, the government steps in to purchase excess supply, driving the price back up again. The surplus is then sold at a loss to producers of ethanol. A significant U.S. sugar harvest in 2013 required the government to spend some $300 million to prop up U.S. sugar prices. As a result of these policies, between 2010 and 2013, the U.S. sugar price has averaged between 64 and 92 percent higher than the world price of sugar.

American sugar producers say that the federal programs are necessary to keep big sugar-producing countries such as Brazil, India, and Thailand from flooding the U.S. market and driving them out of business. Opponents of the practice include numerous small candy producers. Many of them complain about the high U.S. price for sugar. Increasingly, they have responded by moving production offshore. For example, the Spangler Candy Company, the maker of Dum Dums, has moved 200 jobs from Ohio to Juarez, Mexico, where it makes candy canes that are then imported back into the United States. Similarly, Adams & Brooks, a California-based candy company, has shifted two-thirds of its production across the border to Mexico in response to higher U.S. sugar prices.

A recent academic study suggest that the U.S. sugar policies primarily benefit 4,700 sugar producers, while imposing costs of $2.9 to $3.5 billion per annum on U.S. consumers due to higher sugar prices. The same research predicts that removing the support programs would lead to the net creation of 17,000 to 20,000 new jobs in the United States, while dramatically reducing imports of products containing sugar.

Given the benefits of removing sugar support programs and all the talk about deregulation and reducing the budget deficit in Congress, many observers thought that 2013 would be the year that the sugar programs were finally abandoned. The farm bill was up for renewal, and the sugar support programs were held up as an example of how wasteful government subsidies are. However, sugar producers spent some $20 million on political lobbying between 2011 and 2013. Partly due to their influence, the U.S. Senate voted 54 to 45 against any reform in the sugar programs. The majority included 20 out of 45 Republican senators, most of whom publicly rail against this kind of government intervention. Apparently, however, political expediency required that they support intervention in this case.

QUESTION 1: Reflect on the U.S. policy on sugar. As a producer, how do you feel about the policy? Does your opinion change if you are a candy manufacturer? What is your perspective as a consumer of candy and other products containing sugar? As a displaced worker in Ohio, how do you feel about the policy? Should a government protect a few at the expense of many? Is the policy fair?

QUESTION 2: Why do you think the policy on sugar in the United States is so heavily slanted towards sugar producers at the expense of candy manufacturers and consumers? What can manufacturers do? What does your response tell you about the benefits of free trade?