Bush steel tariff move impacts ‘Rust Belt’ voters

Even though “Big Steel” no longer rules the industrial roost, the industry’s clout in some key congressional districts means that President Bush’s decision on steel tariffs can play an outsized role in the midterm elections.

Beset by a series of bankruptcies, the diminished industry had wanted the administration to impose tariffs as high as 40 percent on imported steel. Bush announced Tuesday that he will impose tariffs of up to 30 percent on most imported steel.

The move puts the president at odds with many of his steel-producing allies in the war on terrorism, and threatens to trigger a new trade war with the export-minded Europeans.

On the other hand, advocates contend that tariffs would protect an industry vital to national security from the unfair practices by overseas competitors.

Bush has generally sided with the anti-tax, anti-tariff wing of the Republican Party. So his decisions in this matter are likely to be closely scrutinized in the Rust Belt, a region that, in turn, could affect control of Congress.

The states with the heaviest concentration of steel manufacturers — Ohio, Pennsylvania and West Virginia — will also be key battlegrounds in the 2004 presidential election. Furthermore GOP strategists are concerned over the fate of some half-dozen vulnerable Republicans from those states, who face tough reelection prospects should the Bush compromise fail to meet the approval of steel interests.

Republican Reps. Shelley Moore Capito (W.V.), Steve Chabot (Ohio), Pat Tiberi (Ohio) and Pat Toomey (Pa.) all won their last elections with 53 percent of the vote or less.

In Pennsylvania, GOP freshmen Reps. Todd Platts and Melissa Hart, whose district is marginally Democratic, could also be hurt by the decision. There are a handful of other vulnerable members in Pennsylvania, Illinois, Indiana and Arkansas whose constituencies also demand tariffs.

Rep. Phil English (R-Pa.), who chairs the Congressional Steel Caucus, said he didn’t think his colleagues would be endangered by Bush’s decision.

“The steel caucus Republicans I’ve been working with, they’ve been there for the industry,” English said. “But this could move a lot of unionized voters into the Republican column.”

If Bush risks the ire of steel interests, he might not get the trade promotion authority (TPA) he has been seeking, English warned.

“If this didn’t go their way, generally speaking, I think there are some steel caucus Republicans who would take another look at TPA,” English said.

Indeed, Rep. Bob Ney (R-Ohio) has said that an administration failure to protect the steel industry “will make me look very differently at future trade bills.”

The TPA bill, which passed the House by one vote, must still be approved after it comes out of conference committee.

The White House faced a Wednesday deadline, set by the International Trade Commission, which had recommended tariffs as high as 40 percent.

“If the [final] tariff is 20 percent, foreign industries will eat it as the cost of doing business,” said Nancy Gravatt, a spokeswoman for the American Iron and Steel Institute.

American trading partners have said they will protest even 20 percent tariffs to the World Trade Organization.

“Bush is in a real no-win situation,” said Daniel Ikenson, a Cato Institute scholar. “He could lose the House. Or he could give steel what they want and there’s still no guarantee he’ll get a TPA bill out of the Senate. And even if he gets TPA, who are we going to have a trade agreement with when the rest of the world is irate? If the United States can’t stand up to its most protectionist industry, why should other countries do the same?”

Ikenson noted that some 75 percent of all anti-dumping protests filed with the Department of Commerce come from steel manufacturers.

But tariff proponents contend that their protests reflect foreign anticompetitive dumping practices.

“There’s a definite steel cartel in Japan,” said Peter Morici, a professor at the University of Maryland and former director of economics for the U.S. Foreign Trade Commission. “They get together and set sales targets, which limits the supply in Japan. Then they dump their excess over here. The spot price in Japan is sometimes 20 to 25 percent higher than the price here. In a commodities market, you just don’t see 25 percent price spreads.”

Hart, whose Democratic-leaning district is dependent on steel production, said that tariffs “will help persuade other countries to end their overproduction.”

Tariff proponents also contend that the domestic steel industry is needed to preserve national security at a time of crisis. But a Commerce Department study released in January rejected that contention.

Bush's action's are a step in the right direction, but still inadequate due to inconsistancy.

The optimal solution is a relatively low, across-the-board revenue tariff of 10-20% on ALL imported goods from ALL foreign countries.

"Targeted" tariffs have the disadvantage of providing loopholes and, as others will be quick to point out, the potential to hurt other domestic industries.

A prime example is our failed embargo on the importation of Cuban goods. Cuban sugar has been routinely imported to the U.S. through the back door: Canada. Cuban sugar is shipped to Canada where it is dissolved in molasass. "Canadian" molasass is then legally imported to the U.S. where the sugar is easily refined back out. The leftover molasass is then exported back to Canada where the cycle is repeated. Large sugar-users (such as candy makers) are also closing their domestic factories and moving to Canada where they can legally use Cuban sugar, then import it as candy to the U.S.

An across-the-board revenue tariff of 10-20% would circumvent this type of abuse. Additionally, the revenue could be used to offset a major reduction or elimination of the corporate income tax, providing domestic producers a more "level playing field". (A Proposal to Abolish the Corporate Income Tax)

From a historical perspective, a revenue tariff of 10-20% is NOT excessive:

Unfortunately, Bush's compromise is neither good trade/economic policy nor good tax policy.

Although I'm not crazy about the new tariff either, sometimes you gotta do what ya gotta do.

Remember, Mr Reagan doubled inflation adjusted spending, raised taxes, and signed a most liberal abortion bill -- all while still governor of California. And you know what? He's still our champaion for all time (and rightfully so).

Lets face it: Tariffs DO suck and are a hard pill for free traders like us to swallow, but...

...losing a bunch of Rust Belt seats in Congress and even the presidency in '04 sucks even more.

Lets give the President a pass on this one. He's earned it.

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