Steel tariffs are a mistake
3/8/2002 12:00:00 AM - Bruce Bartlett
I believe that George W. Bush has made the greatest mistake of his presidency by imposing additional tariffs on steel imports for the next three years. It may not be quite as foolish as his father's 1990 tax increase, but it is in the same neighborhood. I believe he has put himself on a slippery slope that has nowhere to go except down.
The White House spin seems to be that Bush simply split the difference between two opposing positions -- either total free trade, on the one hand, or total protection, on the other. By agreeing to a package of modest tariffs, therefore, Bush appears moderate, even statesmanlike.
In truth, neither of these extreme alternatives were ever under consideration. Even if Bush had rejected new tariffs, the U.S. steel industry would still be heavily protected from foreign competition. Some 80 percent of steel imports are already subject to tariffs under previous trade rulings, according to Brink Lindsey of the Cato Institute, and this would not have changed. In other words, the tariffs imposed by Bush are over and above significant existing tariffs.
Furthermore, the steel industry never asked that all steel imports be banned. So total protection was never an option. What the unions and the producers wanted was a 40 percent tariff, and Bush gave them 30 percent. This means that he didn't just split the difference; Bush gave them 75 percent of what they wanted. Since it undoubtedly asked for more than it needed in the first place, the steel industry probably ended up with almost everything it really thought it could get.
For these reasons, it is wrong to view Bush's decision as moderate in any sense of the term. Essentially, he caved in to a special interest and gave them exactly what they wanted. At least, this is how the steel companies and unions see it. By all accounts, they could hardly control their elation at Bush's decision.
This really gets to the heart of why Bush made a bad decision. He has now signaled to the world that he is willing to make important policy decisions based mainly on their political merits. Then, he will send his lieutenants out to rationalize them as being the opposite of what they are -- as U.S. Trade Representative Bob Zoellick did in trying to make the decision to impose additional tariffs on steel seem like a milestone in the history of free trade. It was a performance worthy of Bill Clinton.
Now that Bush has shown that he can be rolled, it is inevitable that he will challenged again and again. There is a long line of domestic industries always looking for a handout, easy profits and relief from competition. And in an increasingly globalized economy, there are few businesses today that don't have foreign competition. What will Bush now say to the textile industry in South Carolina or the auto industry in Michigan? Will he, in effect, say that their votes are not worth buying, as those of West Virginia's, Ohio's and Pennsylvania's steelworkers apparently were? Moreover, what guarantee is there that their votes will stay bought through 2004?
The only argument in favor of the steel tariffs is that Trade Promotion Authority might die in Congress without them. Zoellick desperately wants TPA in order to negotiate a new multilateral trade agreement. But how will he get Japan and the European Union to lower their tariffs against American goods when the Bush administration has shown that it is willing impose them whenever it is politically expedient to do so? In Lindsey's words, they will "laugh in our face."
There is also the problem of retaliation. Japan and the EU have already announced plans to challenge Bush's action. Even if they don't retaliate against the United States immediately, they undoubtedly will find ways to get even at some point. This is why trade protection is so often self-defeating. What one industry gains in terms of lower imports frequently is paid for by other industries in terms of lost exports.
Finally, Bush is naive if he believes he has put the steel problem behind him until after the 2004 election. The steel industry has a long list of demands that are still unsatisfied, the most important being a government bailout of their so-called legacy costs -- health and pension benefits promised to retired steel workers that the industry can no longer afford. They are still pushing for this despite getting trade protection from the White House. Inevitably, they will also push to extend the tariffs when they expire.
In conclusion, Bush has established a bad precedent for himself that may come back to haunt him in future years. I think he will come to regret his decision.