September 29, 2003
By Sara J. Fitzgerald and Aaron Schavey
There's no such thing as a do-over in politics, but President
Bush is about to get a rare second chance to make the right
In March 2002, the Bush administration imposed a tariff of up to
30 percent on several imported steel products. The president has
the option of eliminating those tariffs. Doing so would undo some
of the damage the tariffs have done to our economy, smooth over
relations with our trading partners and strengthen the
administration's free trade (search) credentials. In retrospect,
Bush's decision seems more political than economic. After all, the
tariffs offered little hope to revitalize the faltering steel
industry. But politically, the tariffs seemed to offer Republicans
some potentially important votes in the 2004 elections in
steel-producing swing states (search) like Pennsylvania, West
Virginia and Ohio.
Bush's gamble appears to have backfired. In August, the United
Steelworkers Union threw its support behind Democratic presidential
candidate Richard Gephardt (search), an early endorsement that
signals the union will work hard to defeat Bush next year.
Domestically, the steel tariffs (search) have hurt more workers
than they have helped. That's because industries that use steel to
manufacture other products such as auto parts, appliances and
buildings produce more products and employ more people than the
steel industry does. In fact, according to the Consuming Industries
Trade Action Coalition (search), for every employee in the
steel-producing industry, 59 work in the steel-using industry. The
tariffs increased prices in these industries, lowering demand.
That's why the Institute for International Economics estimates that
as many as 52,000 jobs have been lost in the steel-using industry
since the tariffs were enacted. Eliminating the tariffs would help
strengthen the manufacturing sector by restoring some of these lost
Although they harmed our economy, the tariffs offered little hope
of boosting the steel industry. Even if foreign imports were
completely prohibited, the steel industry would remain inefficient.
One reason is that steel makers have high fixed costs, including
overhead costs that don't change no matter how much -- or how
little -- steel a company is rolling out. To be competitive,
industries with high fixed costs should have only a few large
firms. That's why there are three American automakers, not 33. But
steel tariffs prop up inefficient firms, allowing them to remain in
business even though they're actually losing money. In effect,
they're being kept alive by corporate welfare.
Internationally, the steel tariff succeeded only in angering our
trading partners and injuring our credibility in the global market.
The administration was blindsided by the reaction it received both
at home and abroad. Our international trading partners were livid,
while domestic companies that use imported steel demanded
Almost immediately, the administration started doling those
exemptions out. Countries that held trade agreements with the
United States were completely exempt. Australia received an 85
percent exemption (without it, Australian exporters could have lost
up to $450 million per year). Several other countries were granted
exemptions and several American companies, such as Caterpillar,
were given exemptions for the imported products they use.
Despite the administration's attempts to mitigate the damage of the
steel tariffs it had approved, a number of countries brought a case
against the United States before the World Trade Organization
(search) claiming that the steel tariffs violated WTO rules.
Predictably, the WTO ruled against the United States in July. That
decision paved the way for the European Union (search) to impose
$2.2 billion in tariffs on American products.
If these retaliatory tariffs were implemented, they would harm
American companies in politically important states. That's bad news
for President Bush's re-election bid, and even worse news for the
employees in these companies. Undoubtedly, these tariffs would
force firms to reduce production. That means less work for existing
employees, or job losses in the manufacturing sector. Thus one bad
idea could hurt the economy twice.
Last year, Bush put politics above economics. For the sake of the
American worker and our credibility with U.S. trading partners,
Bush now should put economics above politics by repealing the
tariffs he imposed on steel imports last year.
is a trade policy analyst in the Center for International Trade and
Economics at The Heritage Foundation. Aaron Schavey is an assistant
professor of economics at Bethel College.
originally published on Fox News
There's no such thing as a do-over in politics, but President Bush is about to get a rare second chance to make the right decision.
Sara J. Fitzgerald
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