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 was the first company with a $1 billion market cap?

    United States Steel Corportation (NYSE:X) was the world's first company to surpass the market capitalization mark of $1 billion ... Read Answer >>
  2. 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 >>
  3. Why would a multinational corporation conduct a vertical foreign direct investment?

    In many cases, multinational corporations conduct horizontal foreign direct investment (FDI) activities in order to expand ... Read Answer >>
  4. How much does China's growth affect the price of industrial metals?

    Find out why the health of the Chinese economy is such an important variable for the prices of industrial metals, such as ... Read Answer >>
  5. What emerging markets are best suited for getting the most exposure to the industrial ...

    Discover which emerging markets are best suited to gain exposure to the industrial sector. China is the largest variable ... Read Answer >>
  6. 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 >>
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

    Top 4 Steel Stocks of 2017

    Trump's plan to use US Steel for all new and pipelines and pipeline repairs position these four steel stocks to break out soon and have a stellar 2017.
  3. Insights

    United States Steel Upgraded By JPMorgan (X)

    Shares of U.S. Steel climbed as much as 4.22% Monday, reaching a session high of $19.75 after the company's shares were endorsed by analysts at JPMorgan.
  4. Investing

    Are There Still More Gains For Steel Stocks Ahead?

    The steel sector has rebounded quite nicely over the last few months as investors have looked for value. Given the longer term demand picture, the value is still there and more gains could still ...
  5. Investing

    Trump's Wall Could Be Great News for Steel Stocks

    So Trump signed the order for the Wall. Some industries stand to gain. A lot.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. Investing

    Why AK Steel Stock Surged 32% Last Week (AKS, SLX)

    Steel manufacturers posted strong gains last week in the wake of Donald Trump's surprise victory for the White House.
RELATED TERMS
  1. Steel Industry ETF

    A sector exchange-traded fund that invests only in companies ...
  2. Akio Mimura

    Served as chairman and president of Nippon Steel Corp. Mimura ...
  3. Guy Dollé

    The former chairman and CEO of steel company Arcelor from 20 ...
  4. Lakshmi Mittal

    The chairman and CEO of ArcelorMittal and one of the world's ...
  5. Mill Rate

    The amount of tax payable per dollar of the assessed value of ...
  6. Anti-Dumping Duty

    A protectionist tariff that a domestic government imposes on ...
Hot Definitions
  1. Leverage Ratio

    Any ratio used to calculate the financial leverage of a company to get an idea of the company's methods of financing or to ...
  2. Two And Twenty

    A type of compensation structure that hedge fund managers typically employ in which part of compensation is performance based. ...
  3. Market Capitalization

    The total dollar market value of all of a company's outstanding shares. Market capitalization is calculated by multiplying ...
  4. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  5. Mezzanine Financing

    A hybrid of debt and equity financing that is typically used to finance the expansion of existing companies. Mezzanine financing ...
  6. Long Run

    A period of time in which all factors of production and costs are variable. In the long run, firms are able to adjust all ...
Trading Center