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Steel tariffs were bad economics and bad politics
By W. James Antle III
Among politicians, it is not uncommon for good policy to take a backseat to good politics. But what happens when a decision turns out to be both bad policy and bad politics? This appears to be the case with respect to President George W. Bush's increase in steel tariffs eighteen months ago.
The Washington Post reported Friday that the administration has gained little political mileage from its departure from free-trade principles while the heavy tariff increase has turned out to be an economic blunder. According to the article, even "key administration officials have concluded that Bush's order has turned into a debacle." The economist and nationally syndicated columnist Bruce Bartlett is quoted as saying, "They tried to play politics and it looked like it was working for a while. But now it's fallen apart."
What happened? Those who advocated that the administration raise tariffs argued that such a move would save the steelworkers' jobs and rescue the industry from bankruptcy. Politically, it would help the president shore up his base of support in important states for 2004, such as traditionally Democratic West Virginia, which he won by 6 points in 2000, and Pennsylvania, where he lost to Al Gore by 5 points. It was also supposed to further aid Bush's reelection by neutralizing the Democrats' union advantage by dividing big labor as the United Steelworkers of America came out in support of the president. Finally, U.S. Trade Representative Robert Zoellick assured critics of higher tariffs that the policy would actually advance free trade in the long run by creating political coalitions that would work to pass "fast track" presidential trade promotion authority and giving the United States a bargaining chip in international trade negotiations, such as the World Trade Organization's talks to reduce or eliminate farm subsidies.
Nearly every one of these predictions has proved false. Many economists believe that boosting steel tariffs has cost more jobs than it has saved. That is because the number of steel industry jobs protected by such tariffs is exceeded by the number of jobs lost in steel-using industries, such as manufacturers of automobiles and other products made of steel, as prices increased. Gary Hufbauer of the International Institute of Economics has estimated that higher steel prices have cost manufacturers 15,000 to 20,000 jobs; other studies put that number as high as 200,000. Although tariff advocates argue that protectionism prevents the export of American jobs, this measure has actually sent many steel consumers' jobs overseas, especially to China. Sen. Lamar Alexander (R-TN) contends that the tariffs have "shifted more steel-consuming jobs overseas than exist in the steel-producing industry in the United States." Of the 2.7 million jobs lost since Bush has been president, 2.5 million have come from manufacturing.
The imagined political benefits have also failed to materialize. The United Steelworkers of America has endorsed Congressman Richard Gephardt (D-MO), the former leader of the House Democrats, for president. In an August statement, the union blasted the Bush administration's policies as "reactionary." But now Bush must count business groups representing steel-using companies among his critics as well. Whatever advantages the tariffs may offer in West Virginia is compensated by their unpopularity in manufacturing states like Tennessee and Michigan that are equally important to any 2004 strategy.
The only prediction advocates of higher tariffs made that came true was the passage of the fast track trade promotion authority. This helped the president conclude free trade agreements in Chile and Singapore. But it is uncertain that it passed only because the steel tariffs decision gave wavering congressmen. Even if this was the case, the steel tariffs have hurt the cause of free trade in other ways. Far from serving as a bargaining chip to induce other countries to remove their barriers to U.S. goods, the steel tariffs have had the Europeans and international trade bureaucrats talking about retaliatory measures. The WTO trade talks in Cancun fell apart without any meaningful agreement to reduce farm subsidies. Protectionism begets more protectionism.
Our economy is too complicated and intricately interrelated to be well served by the blunt instruments of protectionists. Tariffs are taxes. Raising them increases not only the costs borne by consumers but also by other businesses. Interventions to save jobs in one industry often take more money out of the pockets of other Americans than each protected job pays. They also have the tendency to destroy jobs elsewhere in the economy. Protectionists simplistically describe economic dislocations caused by numerous complex factors and attribute them entirely to trade with nations that have lower wage rates. This misdiagnosis leads them to endorse the idea of having the government throw a monkey wrench of the engine of the free market. But increased taxes and interference with the marketplace's ability to provide people with the goods and services they demand do not in the end lead to higher living standards.
The opportunity to reconsider this disastrous steel tariffs policy is at hand and the president's team of economic advisors is reportedly united in support of a reversal. With both the political and economic rationale for this cynical trade policy ploy thoroughly discredited, the president should heed their advice. Shielding the steel industry from competition will not save it and the tariffs will reduce employment overall rather than increase it. Sometimes there is no reward for doing the right thing, but in this case there doesn't appear to be any reward for doing the wrong thing. President Bush should correct his mistake and scrap these tariffs.
W. James Antle III is a senior editor for Enter Stage Right.
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