Free Liberal

Coordinating towards higher values

Mr. President, Economics Before Politics, Please

by Courtney Knapp

A recent ruling by the World Trade Organization confirmed that the current tariffs violate global trade laws. For the benefit of both American interests and the global economy, the Bush Administration should realize its error and lift the tariffs before they expire in March of 2005.
Ostensibly, the 8 to 30 percent tariffs were imposed to give domestic industry respite from foreign competition. However, it is clear to see how this decision is motivated by politics rather than sound economics. The tariffs will do little or nothing to revive the failing domestic steel industry, while damaging domestic steel- using industries. By catering to powerful lobbyists in Pennsylvania, West Virginia, and Ohio, the Bush Administration hoped to gain important Republicans votes for the 2004 Presidential elections.
The Bush Administration should view their choices on a global and dynamic level. Although enacting the sanctions would hurt Bush’s chances of winning the steel swing states, by withdrawing the tariffs the economy would be given a chance to recover from the damage they have done in addition to helping ease the tension between the US and the rest of the world.
According to the Consuming Industries Trade Action Coalition, for every employee in the steel-producing industry there are 59 workers in steel-using industries. In other words, for every 1 steel worker whose job is saved, 59 electricians, mechanics, and manufacturers suffer. Prices in the United States are higher than the prices we pay or would pay for comparable quantities in any other location because of fixed costs in production. The United States is not the most efficient producer of steel and the fixed costs of steel production continue to rise. 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. Keeping the controversial program will only continue to hurt manufacturers who rely on cheap steel prices for economic success and allow artificial pricing to flourish.
Even if foreign imports were completely prohibited, the steel industry would remain unproductive. Rather then bolster an inefficient industry and shelter domestic firms from more efficient global competition, the Bush Administration should help move the fading steel industry towards specialization. In order for the industry as a whole to remain competitive, only the best and most efficient companies should be producing steel. The elimination of tariffs would also help to fortify the steel-using manufacturing industry, the only sector that has yet to feel the impact of a strengthening economy.
The tariffs were found to be inconsistent with US commitments under the Agreement on Safeguards and the WTO ruled the export subsidies illegal. At this news, the EU asserted that it would enact tariffs in retaliation if the US refuses to change or eliminate the tariffs. Up to $4 billion in tariffs on 1,866 products could be imposed on exports ranging from machinery to textiles and fruits. Our international trading partners, especially the EU, have been livid from the start, calling the tariffs unfair and unnecessary. According to the WTO decision and angered EU citizens, the US already has a diminishing credibility with our trading partners. Many Americans recognize that there is no sound justification for the tariffs and that the situation must be remedied.
Currently, the Bush Administration is searching for an arrangement that will please all parties involved. Hoping to keep the swing states placated while creating more exemptions seems to be the conclusion on the horizon. In response to the Administration’s said objective, Pascal Lamy, the EU Trade Commissioner, argues that there is no compromise between the status quo and the elimination of tariffs.
The current tariffs allow the failing steel producers to stay in business while they losing money. The EU, and possibly the rest of the world, will enact corrective sanctions on the US, which will damage a vulnerable economy’s recovery. An impossible level of justification would be needed to continue with the tariffs as they are now. The Bush Administration should put economics above politics, as no number of votes is worth the costs of the current tariffs.