The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper examines the supposed welfare gains from strategic trade and industrial policies in the U.S. steel industry. Strategic policies to capture labor rents lead to an endogenous response which greatly diminishes their importance. On the other hand, reducing domestic labor market distortions results in welfare gains nearly as large as those from optimal trade and industrial policies. The paper concludes that the focus on labor rents as the subject of U.S. trade and industrial policy is overstated, at least in manufacturing industries such as integrated steel.