Bush tariffs are bad policy
3/9/2002 12:00:00 AM - David Limbaugh
President Bush’s decision to impose substantial tariffs on a wide range of steel imports is disappointing and troubling.
Under heavy pressure from domestic steel producers and steelworkers’ unions, President Bush ordered tariffs ranging from 8 percent to 30 percent on foreign steel. In seeking to justify his action he curiously invoked the language of free trade, saying, "We’re a free trade nation, and in order to remain a free trading nation we must enforce the law. That’s exactly what I did."
Honestly, I don’t understand anything about that statement, since there was nothing "free-trade" about it, nor is there any law of which I’m aware that his action will enforce. I suppose Bush could be applauded for keeping a rather nebulous promise to come to aid of the steel industry. But he shouldn’t have made such a pledge in the first place, especially since it directly conflicted with his repeated assurances that he is an ardent free-trader.
Many are arguing that Bush’s decision was motivated by politics, but it’s difficult to imagine this accruing to his advantage in the long run. It will further tarnish the Republican Party’s sought-after image as the party of freedom and lower taxes. (Libertarians: Hold your laughter.) Besides, the unions wanted 40 percent tariffs. Regardless, it’ll take more than Bush’s overture to move them into GOP territory. And, one of Bush’s would-be presidential opponents, House Minority Leader Dick Gephardt, predictably assailed the president for not going far enough. Give me a break. Gephardt never saw a tariff he didn’t like.
Aside from political considerations, which ought to be secondary anyway (forgive my Pollyannaishness), these targeted import duties will harm more people than they help and will adversely affect the economy, which is struggling to recover. They will doubtlessly result in lost jobs in businesses that will have to purchase steel at higher prices. And, they will cause prices to rise on all products made with steel.
In a joint study, the Heritage Foundation
and the Consuming Industry Trade Action Coalition projected that the proposed 40 percent tariff could cost a four-member family around $283 per year. The study’s authors believe that the president’s "30 percent" plan "would be somewhat less than that."
Further, as others have observed, where do you draw the line? If steel manufacturers are entitled to governmental intervention, why shouldn’t other industries be also? Politicians from around the country will now be lying in wait to push for pork-barrel protection for their respective constituent industries.
Interestingly, most economists, liberal and conservative, agree that tariffs are bad economic policy. Protectionist arguments are largely political and emotional.
When this tariff issue surfaced, I remembered a book by Milton and Rose Friedman called "Free to Choose." In it, they made a compelling case for free trade and answered all the standard objections.
You’ve heard the arguments, but one has particular relevance to the current problem. It goes something like this: "I’m all for free-trade, provided it’s fair trade. We must protect our workers from the unfair competition (lower wages, subsidies, etc.) of other countries." Hear the Friedman’s on this.
"Suppose that, for whatever reason, Japan decided to subsidize steel very heavily. If no additional tariffs or quotas were imposed, imports of steel into the United States would go up sharply. That would drive down the price of steel in the United States and force steel producers to cut their output, causing unemployment in the steel industry. On the other hand, products made of steel could be purchased more cheaply. Buyers of such products would have extra money to spend on other things. The demand for other items would go up, as would employment in enterprises producing those items. Of course, it would take time to absorb the now unemployed steelworkers. However, to balance that effect, workers in other industries who had been unemployed would find jobs available. There need be no net loss of employment, and there would be a gain in output because workers no longer needed to produce steel would be available to produce something else."
Though the Friedmans admit that unfair trade practices of other nations hurt us, they show that they hurt the offending nations as well. But more to the point, if we retaliate, we just harm ourselves more, not to mention prompting additional retaliation from other nations.
While I’m not quick to conclude that Bush based his decision solely on crass political calculations, it’s hard to conceive of any other reason. Nevertheless, it was a serious policy mistake, and one I believe he’ll come to regret.