Tuesday, November 13, 2007

Steel, China and Other Delights

Yesterday's (11/12/07) issue of The Wall Street Journal provided a cornucopia of articles that can be used in the classroom. That publication is a favorite of mine for finding things like this, and everyday is pretty profitable)high marginal benefit to cost), but yesterday was great. This post focuses on three of the articles and will provide some ideas for their use.

The first two articles, "Big Steel is Dealt Weak Bargaining Hand", (subscription required) and "West's Mining Deals Put China in a Bind" (subscription required), are about the potential merger of two of the world's largest mining concerns, BHP Billiton and Rio Tinto. Because these two are big players in iron ore mining, the combination could have significant repercussions for steel producers around the globe. But the problem could be especially significant in China.

The impact is less significant for a number of U.S. steel producers as can be found out in the third article, "U.S. Steelmakers Draw Fire" (subscription required). But it has another twist. The reason the combination is not as large a problem in the U.S. is that many domestic steelmakers own their own sources of ore - an example of "vertical integration." But the twist comes from the fact that U.S. steel is heavily subsidized to protect it from foreign competition. The subsidies are considerable. And one gathers from the third article, that even with the combination of BHP Billiton and Rio Tinto, the potential price rise will still not make U.S. steel producers competitive, and willing to give up their subsidies.

These articles can be used in so many ways. You can discuss of market structure (combinations and how some natural resource firms handle production and pricing), interdependence (impact of ore prices on steel and then on consumer prices), international trade (the role of multi-nationals, comparative advantage, or why nations trade), the role of government and fiscal policy (subsidies are part of fiscal policy) and the impact of trade barriers on consumer prices and competition.

I encourage any economics teacher to look at these articles. Try the links, but if they get disabled, look for old copies of The Wall Street Journal in your school or public libraries. To borrow from the theme of the articles, there's a rich vein of resources to be mined here.

I look forward to your comments and any further suggestions you may have.

1 comment:

Mike Fladlien said...

You are so right...i was looking for a way to show vertical integration...i have always been told that Korea has a huge comparative advantage in steel...