For the week of March 20 - 26, 2002

Bush failed us on steel tariffs

Commentary by ADAM TANOUS

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What a curious political world we live in when a Democratic president pushes through the North American Free Trade Agreement and the treaty establishing the World Trade Organization—gets villified for those actions by conservatives—and a Republican president imposes tariffs on imported steel, making friends in the unions.

I doubt the irony is lost on Bill Clinton, who was considered the ultimate political chameleon. But now—like Captaine Renault in "Casablanca" who was "shocked" to discover gambling going on in Rick’s—we are shocked to see President Bush changing colors.

Two weeks ago Bush decided to impose up to 30 percent tariffs on steel imports from China, Japan, South Korea and countries in Western Europe. It was widely seen as an attempt to shore up a flagging U.S. steel industry.

The justification the White House submitted to the World Trade Organization—the court authority on such matters—was that it was a "safeguard" measure to protect against a surge in imports. In essence, they are saying that the imports are damaging the U.S. industry.

The reality of the situation is considerably more complicated. No one disputes that the industry is in bad shape. But why?

Steel imports have, in fact, been declining rapidly since the 1998 Asian financial crisis resulted in a glut market for steel.

The fact is there are many older steel companies in this country that are tremendously inefficient. Those making steel with iron ore and coke in blast furnaces cannot compete with the so-called "mini-mills" that use electric furnaces and scrap metal.

Perhaps the greatest problem the industry faces is more fundamental. Steel production is a labor-intensive industry. And the older mills are heavily unionized, a fact that makes their labor costs dwarf those of foreign producers. What’s more, these companies have enormous "legacy" costs. These are responsibilities for pension and health care benefits that were promised in union contracts to retired workers. While those promises should be honored, it doesn’t mean steel companies should be propped up and allowed to skirt the demands of free market competition.

One has to wonder about the wisdom of any U.S. company trying to compete in an industry where labor is the major cost. This is exactly why free markets are so valuable: They move resources into industries where they are most efficient.

At the turn of the 20^th century we were good at making steel, but the world has changed. Now we’re good at creating software, providing financial services and other New Economy services. If our steel companies can’t compete, they should go bankrupt. All these tariffs will do, other than inspire retaliation, is to postpone the eventual collapse of the inefficient steel makers.

And retaliate is what several countries will do, though the WTO mandates a 90 day waiting period before any retaliatory measures may be taken. Already Russia has vowed to ban imports of American poultry. Half of our poultry exports go to Russia. Other agricultural industries will likely suffer, too. People like Republican Sen. Grassley from Iowa see the writing on the wall; it is why he is butting heads on this issue with traditional Republican allies like Sen. Arlen Specter of Pennsylvania.

Which raises the obvious question: Why would President Bush take a step that so clearly contradicts basic economic logic?

And the obvious answer is politics. In the three key steel states, Ohio, W. Virginia and Pennsylvania, there are six House seats up for grabs in November. Who wins those will likely control the House, which the Republicans narrowly control now.

Then there are the presidential election dynamics to consider. Pennsylvania and Ohio are a treasure trove of electoral college votes: 21 and 20 respectively. Bush can easily afford to lose the occasional agricultural state like Iowa, 7 votes, or Kansas, 6 votes, if he gets one of the big steel states. When Bush carried the traditionally Democratic state of W. Virginia in 2000, it provided the 5 vote margin of victory. It would be naïve to think that fact is lost on President Bush.

Much of the criticism of Republicans who supported Bush on the tariffs revolved around principles not politics. How could they contradict a basic Republican tenet like free trade, the argument went? But I think that’s a red herring.

So much is made of principles in politics—who has them who doesn’t. It seems to me to be overblown rhetoric. What seems to be lost in the fray of modern day politics is that we have a representative democracy. All those congressmen and women are supposed to be expressing the wishes of their constituents, not demonstrating how principled they are.

It’s why I don’t begrudge Sens. Grassley and Specter fighting for their states, regardless of what side of the tariff issue they happen to fall and regardless of what party they happen to belong to. That is a senator’s job after all—to speak for his or her people. They aren’t there to implement a platform of political ideas.

The president, however, should be looking out for the country, in general. He should put the national interests ahead of all else. Those are the principles he should concentrate on. Using tariffs to temporarily prop up several steel companies that cannot possibly compete on the international market benefits three or four states. It jeopardizes other industries nationwide, as well as being a diplomatic boondoggle. And this last point may prove to be the biggest Achilles heel of all.

If this plague of terrorism has taught us anything, it is that the U.S. cannot continue to swagger around the world like the lone sheriff. We throw out a lot of rhetoric about being a partners with everyone—mostly when we need their help—but then we fall back into our isolationist ways with an action like imposing tariffs.

It is painfully obvious that the world is heading towards globalization of economies, human rights and political equality. Why do we continue to approach the future with a combination of macho arrogance and ambivalence? We might be the biggest, strongest kid on the playground, but if none of the other kids let us play in the game of four-square, what good does it do us?

 

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