Skip to comments.Bush's folly [Steel Tariff]
Posted on 03/07/2002 7:15:26 AM PST by xsysmgr
A mere two months ago George W. Bush chided Americans seeking to shut down trade for lacking confidence in American workers, entrepreneurs and products. Now, in a political gesture to the US steel lobby and to swing voters in politically sensitive rust-belt states, the President has delivered his own vote of no confidence. This short-sighted act recalls his fathers fateful decision to raise taxes, having promised the opposite and invited voters to read my lips.
The punishing import tariffs he has authorised will not save the US steel industry, where 31 companies have filed for bankruptcy since 1997. It has resisted consolidation for too long; fat benefits paid to retired steelworkers, of whom there are now 600,000, are alone enough to drive most of them to the wall and the Administration is not going to pick up that bill. And the crisis in steel is global: worldwide, although companies are working at only 77 per cent of capacity, production exceeds demand by 100 million tonnes a year. Mr Bushs act has weakened the chances of international agreement to deal with this surplus capacity. It is politically foolish; and it makes no economic sense.
The first thing for Americas indignant trading partners to remember is that these tariffs will backfire. They will cause many more job losses in other sectors of the US economy than can conceivably be saved in its floundering integrated steelmills. The weakness he has shown may hurt Mr Bushs own high standing, based as it is on the resolution he has shown in meeting the terrorist threat. That is Americas business. But, because US leadership in opening markets is as crucial now as it has always been, this ill-considered act could also cripple the fresh effort, launched last year at Doha, to boost global growth by further liberalising international trade. That is the worlds business.
In trade disputes, it always pays to turn the other cheek. That is because tariff walls are an own goal. This is true even for the sectors that demand protection; they lose the incentive to recover their competitive edge by restructuring. But protectionism also harms the whole economy. In the US, it is a long time since steel was king; vehicle and other manufacturers now employ 50 times as many workers. The steel they use will now cost more, driving up production costs, affecting both profit margins and consumers of their goods. In a globalised economy, that will tempt more US companies to shift production to countries where costs are lower. Thanks to this futile effort to preserve unviable jobs in steel, US labour will be less productively employed than it should be.
America, in other words, is about to hand advantages to its competitors, not harm them. If the European Union were to raise its own tariffs, that would damage Europes economies too. That is not, however, how Russian, Asian and European steelmakers understandably feel about being effectively excluded from the US market. However valid they are, when one country raises tariffs the classic arguments for free trade get drowned out by shrieks of pain. Russia, foremost among the cash-strapped countries the US should be nurturing in the campaign against international terrorism, stands to lose $1.5 billion in export earnings. With elections looming in France and Germany, the US is not the only country where short-term electoral calculations will win out over the national interest. Even in Britain, Patricia Hewitt has sworn to erect safeguards against a flood of cheap Asian steel. Tony Blair should swiftly rein her in.
The EU will rightly haul the US before the World Trade Organisation for this fresh breach of its rules. If the EU targets Americas steel-producing states, as it exacts the compensation for disguised US export subsidies the WTO has already authorised, that is Mr Bushs funeral. But outsiders must at all costs avoid retaliatory tariffs. Widening this war would hurt the world far more than this single bit of protectionism could ever do. Mr Bush has done damage enough. The natural political instinct is to repay him in his own coin. It is an instinct to suppress.
Yes, it makes sense that they would see it this way "across the pond". Tariff bad, Nafta good; Friederich List bad, GATT good; Pat Buchanan bad, WTO good; and now tariff-supporting Bush bad, globalization good. Who needs the Brits advice on economics (hah), or anything else-- every 100 years or so they come, either to confiscate guns or to beg for them. Up theirs.
30% tax on imported steel, hmm, I wonder what the people buying that steel are going to do?
Smile are pay 30% more for American steel and lead a rousing corus of "God Bless America" and "Look For The Union Lable" at their annual share holders meeting or... do you think they are going to move their manufacturing to Canada and Mexico, use the same foreign steel, then import the Canadian and Mexican made goods into the United States under NAFTA.
You don't need to be a Wallstreet Economist or a Harvard MBA to figure out that one!
I know I keep repeating this, but it seems to be lost on all the Bush Apologists who would praise him as the greatest if he took a dump on their front porch.
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