President Bush makes compromises
Thomas Asma
President Bush's decision to take action
under Section 201 of the Trade Act of 1974 to protect the steel industry
precipitated an expected deluge of
outrage from economists, Wall Street Journal
opinion writers and various interests, despite a unanimous ruling from
the U.S. International Trade
Committee endorsing such measures. All
of the detractors lambasted the president as weak and politically self-serving,
which is far from the truth. The
decision was a principled compromise made
with the best interest of the country in mind.
The arguments against saving steel in America
are all economic in nature. If tariffs are imposed, domestic steel companies
can charge more, the
price of steel will increase and the price
of products that use steel will increase, including everything from automobiles
to household appliances. This
is true, but steel is a small share in
the total costs in consumer products. MIT economics professor Jerry Hausman
has amassed a Consuming
Industries Trade Action Coalition study
that forecasts high inflation due to steel tariffs. He concludes that according
to the study's model, the average
price increase in the cost of a car would
be about $2.
Economic consequences are by no means the
whole picture. President Bush had to consider many factors before coming
to this conclusion, and the
trump card here is national security.
Oil has taught America that it is bad policy to rely on foreign entities
for any commodity. This creates coercive
power to use against the United States
and spawns little delights like the Organization of the Petroleum Exportating
Countries. It is essential for the
well-being of our country to have a dependable
and viable steel industry.
Some complain that the U.S. steel industry
uses dumping tactics domestically, as foreign steel producers did to harm
America's steel. Once again,
this is true, but flawed logic. This situation
is an international trade matter, not an interstate trade issue. Anti-dumping
laws only apply to foreign
producers, not domestic, and these laws
need to be enforced to protect against harm stemming from politically motivated
trade crises.
One of the biggest concerns of European
steel producers is not the cost of importing to the U.S. market, but rather
the flood of steel into their market
that will ensue after the implementation
of these tariffs. The European Union has assured these companies that this
will not happen. This highlights a
tendency by all countries to shield industries
from gluts in production.
Countries that produce far more steel than
they can consume have brought about the glut in question: excess steel
capacity throughout the globe.
China only produces enough steel to supply
its own market, whereas Russia, former Soviet Socialist Republics, and
other countries' steel producers
produce much more steel than they can
consume, and sell it cheaper because their government subsidizes them so
heavily. Eager producers then
bring it to the largest market in the
history of the world, the United States. Speaking of subsidies, President
Bush denied the steel industry the
subsidies it had requested, the assumption
of debilitating legacy retiree costs to the tune of $12 billion.
These were generous contracts negotiated
decades ago under pressure from the Truman, Eisenhower and Kennedy administrations
that have
become the unreasonable debt load today.
Bush denied subsidies for steel, but imposed
lawful tariffs to protect it from unfair trade. The U.S. ITC recommended
tariffs of 20 percent and the steel
industry asked for 40 percent; Bush imposed
30 percent. In these ways, the president made reasonable and intelligent
compromises, laying the
groundwork for free trade by respecting
fair trade and making a level playing field.
