Bruce Bartlett

A little over a year ago, on March 5, 2002, President Bush made a serious mistake by imposing tariffs on imported steel. At the time, there were many, including myself, who said that the negative impact of this action on steel consumers would be much greater than any benefit to steel producers. Thus the economy as a whole would suffer. In the time since, this prediction has been borne out by experience.

Last month, the Consuming Industries Trade Action Coalition, a business group, published a study showing that as a result of tariffs, job losses among steel users exceed those in the entire steel industry. It estimates that 200,000 jobs were lost among steel users, while there are only 187,000 total people employed in the steel industry. Sixteen states lost at least 4,500 jobs, including California (19,392), Texas (15,826), Ohio (10,553) and Michigan (9,829).

The reason why steel consuming industries lost jobs is because the tariffs greatly increased their costs -- costs that could not be passed on to consumers due to the absence of inflation. Hence, these higher costs had to be absorbed out of profits. With many manufacturers already suffering losses due to the slow economy, the result was layoffs and bankruptcies.

The steel tariffs ranged from 8 percent to 30 percent on nine different categories of steel. The latest data show that most steel prices are up by about 30 percent on average since the tariffs were imposed. For example, cold rolled coil is up 41 percent since January 2002. Hot rolled coil is up 37 percent, stainless steel is up about 30 percent, and hot rolled plate and wire rod are up 24 percent. The Producer Price Index (PPI) for all steel mill products rose 11.7 percent between February 2002 and February 2003, according to the Bureau of Labor Statistics.

By contrast, steel users have often been forced to reduce their prices. Prices for motor vehicles are down 2.3 percent over this same period. Motor parts are down 1.3 percent, and machine tools are down 1.9 percent. Among steel-using businesses, none has seen price increases close to those for steel producers. Fabricated metal products are up just 1 percent, and the overall PPI is up 3.5 percent.

Bruce Bartlett

Bruce Bartlett is a former senior fellow with the National Center for Policy Analysis of Dallas, Texas. Bartlett is a prolific author, having published over 900 articles in national publications, and prominent magazines and published four books, including Reaganomics: Supply-Side Economics in Action.

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