Steel strikes a blow against free trade

0 Comments | Insight on the News, April 1, 2002 | by Jamie Dettmer

President George W. Bush has for years extolled the virtues of free trade, and his administration has worked hard to shape international circumstances likely to lead to open markets and encourage trading accords. Arguably, Bush already has done more to further free trade than Bill Clinton did during the eight years in which he failed to live up to the open-markets rhetoric of his campaign for the North American Free Trade Agreement.

Despite the early defeatist advice of Charlene Barshefsky, Clinton's trade czar, the Bush administration has wrestled fast-track negotiating authority through the House and is being stymied only by the hold organized labor has on the Democratic leadership in the Senate. The Bush administration also had a successful summit in Quebec last year, marking the start of an effort to open the way for a Free Trade Zone of the Americas covering the whole of the western Hemisphere.

But domestic politics has a nasty habit of getting in the way of free trade. And on March 5 it did just that when Bush announced his decision to impose punitive tariffs and quotas on steel imports coming into the United States -- a move that most trade lawyers agree is in direct violation of world trade rules. The move risks provoking a nasty trade war with the European Union at a time when the strains in the international coalition against terrorism are beginning to tell.

Although the tariffs have not been set as high as U.S. steelmakers and American workers demanded, the move gives the industry the substance of what it wanted -- protection from overseas competitors, who they say are dumping cheap steel in the United States.

To lessen the dismay of the Europeans, Russians and Asians, the White House has emphasized that the new tariff regime will last only three years, giving the U.S. steel industry a breathing space to restructure itself so that in the future it too can be competitive. So far that line has not appeased overseas anger, and that's hardly surprising -- most industry observers suspect the opportunity being handed to U.S. steelmakers and their workers will be squandered.

The U.S. steel industry has done little in the last few years to transform itself from a lame duck to a lean, mean, manufacturing machine. Some industry analysts believe the three-year breathing space is likely to prolong the agony of an industry whose future prosperity lies in consolidation rather than artificial protection from competitive pressures to restructure.

The challenge the U.S. steel industry has faced is not one of too much competition from unfairly competing importers. Since 1998, imports have fallen by 27.5 percent. In economic terms, what has been at issue is the survival of about 30 bulk producers that are just too small to compete.

Unfortunately for the cause of free trade, those bulk producers just happen to be concentrated in a handful of swing districts in a handful of Rust Belt states, including West Virginia, which proved crucial in electing Bush to the White House.

As a narrow electoral decision, Bush's move hardly can be faulted. As his adversaries argue, he merely is making good on his campaign promises to help America's ailing steel industry. The Republicans can expect a reward in this year's congressional elections as a result.

Even so, not all Republicans are happy. In a statement issued a few hours after the tariff decision, Sen. Chuck Grassley of Iowa criticized the move. "Over the last few months, I've expressed strong concerns about imposing quantitative restrictions or barriers to U.S. steel imports, and I remain concerned today," he said.

Grassley added: "The number of workers in industries that consume steel in the United States far outweighs the number of workers within the steel industry. Imposing barriers or other restrictions on their ability to import the steel they need to compete could have a lasting detrimental impact on these U.S. companies and their workers."

It is a position the president's economic advisers took, too. Bush's chief economic adviser, Lawrence Lindsey, warned behind the scenes that the price of steel would rise by as much as 10 percent, a cost American consumers ultimately will bear in higher prices.

More American jobs could be lost than saved -- according to one study, 13 times more. But those jobs, of course, will not be concentrated in a handful of swing electoral districts, so their political impact will be negligible.

The higher consumer costs also are unlikely to be traced back to the steel decision by those who will have to pay them. And, even if they are, the White House has an argument that may convince consumers of the need to bear higher costs -- it is the price of patriotism and national security.

There is a counterargument to that -- namely, that the price of patriotism should be borne by the inefficient U.S. steel industry.

The tariff decision has placed further strain on America's already-strained relations with Europe, which stands to lose 18,000 jobs as a result of the move. The United Kingdom, which has been a staunch ally in the war against terrorism and the only close ally to support the idea of taking action against Iraq, will lose 5,000 jobs.