A:

In early 1950, Senator McCarthy began seeing communists in every shadow, prompting him to accuse the Truman administration of being soft on the rampant communism spreading across the globe. When North Korea invaded South Korea, Truman saw his chance to get tough on communism abroad and led the nation into the Korean War. In the five-year break between WWII and the Korean War, the U.S.economy had staged a recovery and had begun to return to free market capitalism. The onset of another war, however, brought back price and wage controls that were necessary to keep the government from going bankrupt during war times.

The steel industry was particularly vulnerable to government controls because metal was vital for building the tanks, bombs and guns that were being driven, thrown, tossed and shot over the Korean peninsula. The government established quotas at low prices along with mandates that steel mills must meet the quotas before the mills could sell excess production on the more lucrative private market. However, steel mill owners wouldn't agree unless the wages they were required to pay were controlled in a similar fashion.

The steel industry felt no desire to expand operations to fill more government quotas at a loss, and the general inflation meant that holding down wages was the only way to eke out any profits. The steel union, understandably, saw the buying power of workers' meager wages drop as inflation advanced. Thus, the union proceeded with preparations to strike. The government attempted to play the middle, giving into half-measures on both sides in order to keep the mills churning out steel. But the ploy failed. The union decided to strike and, just before the strike was about to begin, Truman announced that he was seizing control of the entire industry. Truman declared that the uninterrupted production of steel was necessary for national security and, therefore, executed measures to nationalize the industry.

The lawyers for the steel industry instantly swung into action after the announcement. The media was aroused and many journalists made the connection between nationalization in fascist Germany and Truman's actions. Public opinion of the president was already negative because the shortage of domestic steel had choked off many steel-dependent industries, which had led to layoffs and shutdowns. The steel industry's legal team argued that unfettered presidential power was not a part of a constitutional democracy and the Supreme Court agreed.

The government gave control of the steel mills back to their owners and the Steelworkers Union of America promptly went on strike. The mills shutdown and the steel shortage became acute. Struggling industries as varied as automobile makers to food canneries were unable to obtain even leftover steel after quotas were fulfilled. No new steel was entering the market, so when the military began to run out of shells and bullets, the government stepped in again.

The government threatened to re-seize the industry under new legal grounds and began ordering steel directly from the mills to ship to the weapons manufacturers. This made the case for seizure stronger and brought the mill owners to the bargaining table. The price controls were relaxed and wages increased until the two sides reached an agreement. Finally, the furnaces were restarted and once again cars, cans, bombs and bullets began rolling off factory lines.

For more on this topic, read The Whens And Whys Of Federal Intervention.

This question was answered by Andrew Beattie.

RELATED FAQS
  1. What are the most famous monopolies?

    Learn about famous monopolies from Carnegie Steel to Comcast that challenge free-market competition and encourage government ... Read Answer >>
  2. What types of raw materials would be used by an auto manufacturer?

    Learn about some of the many raw materials required for auto manufacturing, including iron, made into steel; aluminum; rubber; ... Read Answer >>
  3. Which commodities are the main input materials for the automotive sector?

    Explore the materials used by automakers to create modern cars and trucks. Find out more about the materials market as it ... Read Answer >>
  4. What other sectors are most highly correlated with the automotive sector?

    Learn more about industries that are closely related to the automotive industry. Explore investment opportunities and industries ... Read Answer >>
  5. What is the difference between Communism and Socialism?

    Learn how some countries are incorporating socialist methods into capitalism. Read Answer >>
  6. Why does the IRS withhold income taxes from employee paychecks?

    In the midst of WWII, the U.S. government ran into trouble funding the war effort. The problem did not originate from citizens ... Read Answer >>
Related Articles
  1. Investing

    How China Impacts the Global Steel Industry

    The Chinese economy is having a significant impact on the performance and profitability of steel and mining stocks.
  2. Investing

    Can U.S. Steel Stock Really Climb 50% in One Year? (X)

    United States Steel comes highly recommended for risk-tolerant investors, according to Barron's.
  3. Investing

    Donald Trump's Wall Could Boost Steel Stocks (AKS, NUE)

    Trump's position on securing the Mexican border should bode well for steel stocks and steel ETFs.
  4. Insights

    Is Now the Time to Buy Steel Dynamics? (STLD)

    After 15% declines over the past three months, it certainly seems as if the risk-versus-reward profile of Steel Dynamics has drastically improved.
  5. Investing

    Is Now The Time To Invest In Steel?

    Recent price drops present long-term opportunities, while many stable ETFs remain attractive. Learn your best options for turning cold hard steel into cold hard cash.
  6. Investing

    United States Steel to Trade Ex-Dividend (X)

    Absent higher steel demand and improving commodity prices, U.S. Steel, even with its solid yield, isn't a value.
  7. Insights

    U.S. Raises China Steel Import Duty Sixfold (SLX)

    The U.S. said Tuesday it would raise import duties on Chinese cold-rolled steel by 522%.
  8. Investing

    Steel Stocks Reach 52-Week Highs on Trump Rally (AKS, NUE)

    Several steel manufacturers soared to 52-week highs on Tuesday, as did the Market Vectors Steel ETF.
  9. Investing

    AK Steel Stock Get Downgraded by Jefferies (AKS)

    One would need fortitude as strong as steel to invest in steel stocks over the past month.
  10. Insights

    AK Steel Falls Amid Weak China Exports (AKS, SLX)

    AK Steel shares declined as much as 6% Thursday after China reported worse-than-expected exports, causing a sharp decline in steel prices.
RELATED TERMS
  1. Steel Industry ETF

    A sector exchange-traded fund that invests only in companies ...
  2. John Stuart Mill

    A nineteenth-century British philosopher and classical liberal ...
  3. Anti-Dumping Duty

    A protectionist tariff that a domestic government imposes on ...
  4. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest ...
  5. Communism

    A political and economic ideology based on communal ownership ...
  6. Big Uglies

    Old industrial companies in gritty industries (such as mining, ...
Hot Definitions
  1. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  2. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  3. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  6. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
Trading Center