Using information from the text/data and your knowledge of economics, discuss the view that Sorala's government should use a tariff to protect its steel industry.

Paragraph 1: Steel has been made in the north of Sorala for a century. Over the last five years too much steel-making capacity around the world has pushed the world price of steel down to US$600 per tonne, and imports now supply 55% of the steel used in Sorala. Three steel plants have closed. Many of the workers who lost their jobs have skills that the region's growing service firms do not want, and structural unemployment in the north has risen sharply.

Paragraph 2: The low world price is not the only reason why imported steel has become cheaper. Large inflows of foreign direct investment (FDI) into Sorala's technology industry increased the demand for the Soralan peso, which appreciated against the US dollar in Year 2 (Table 2).

Paragraph 1: At the start of Year 3 the government imposed a tariff of 25% on imported steel. Ministers argue that foreign producers are dumping steel in Sorala at prices below their costs, and that a steel industry is needed for national security. The steel producers' association expects output to rise by one million tonnes and employment in steel production to grow from 40,000 to 46,000 (Table 1). The average wage in the industry is 150,000 pesos a year.

Paragraph 2: Firms that use steel are less pleased. Car makers and construction firms, which together employ 320,000 workers, say that the tariff raises their costs and will make Soralan cars less competitive in export markets.

Paragraph 1: The Eastern Union buys 30% of Sorala's exports of fruit and wine, which are worth 20 billion pesos a year in total. It has warned that it will place a tariff of 20% on these goods unless the steel tariff is withdrawn.

Paragraph 2: Some economists suggest a different approach. Instead of protecting steel, they say, the government should pay for retraining programmes for steelworkers who have lost their jobs and improve transport links between the north and the rest of the country.