April 10, 2003

WHAT ABOUT THE STEEL TARIFFS?:

Bush Meets C. American Leaders on Trade (JENNIFER LOVEN, Apr 10, 2003, Associated Press)
The negotiations for yet another tariff-lowering agreement, begun in January and expected to wrap up by the end of the year, were to dominate a session Thursday in which Bush was welcoming the leaders of Costa Rica, El Salvador (news - web sites), Guatemala, Honduras and Nicaragua to the White House. [...]

Bush, a staunch believer in free markets, has aggressively pursued deals to lift trade barriers as he seeks to nudge the economy into better shape.

In addition to the pending pact in Central America, the White House wants to complete negotiations with Morocco this year and with Australia and five countries in Southern Africa in 2004. Deals were recently inked with Chile and Singapore. The idea is to push ahead on these several smaller fronts and create momentum for bigger deals.

The administration is currently involved in 34-nation talks to create the world's largest free trade zone, covering the Western Hemisphere, and global trade talks involving the 144 nations that are members of the World Trade Organization.


You gotta think there are an awful lot of pundits who are deleting their old files just as fast as Ba'athists. Posted by Orrin Judd at April 10, 2003 8:41 AM
Comments

It's still in the spring 2002 stage - talk, not yet accomplishment - no need to delete files just yet. The WTO talks are going nowhere, and even the bilateral negotiations that are nearly concluded, much less the Western hemisphere talks just beginning, need to be ratified in the Senate. None of this is likely to happen before the 2004 elections. So, we're stuck with a poorer economy due to the steel tariffs, and only the promise of freer trade later.



Now, this course may pay political benefits - Karl Rove's expertise there far surpasses mine - but I doubt Rove or Bush realizes how economically damaging the steel tariffs continue to be.

Posted by: pj at April 10, 2003 10:07 AM

pj:



What steel tariffs? Bush granted waivers to anyone who would have been affected.



Meanwhile he's got trade deals with Chile, Singapore, etc.



You're slipping out of reality and into dogma.

Posted by: oj at April 10, 2003 10:49 AM

I read a few days ago in the Wall Street Journal that average steel prices are up 25% compared to pre-tariff levels; I believe they're in the neighborhood of 50% above world market levels. Bush granted some waivers to a few politically connected steel consumers, but those who aren't powerful didn't get waivers.



The reality is that there are 20 workers in steel-consuming industries for every worker in steel, and every one of those industries is now having difficulties just so that a few steel firms and workers can spend a few more years living in the past.

Posted by: pj at April 10, 2003 11:44 AM

But it got him trade negotiation authority and a GOP Congress. You want Iraq without any collateral damage.

Posted by: oj at April 10, 2003 12:30 PM

First of all, you may be right. My general prejudice is that good public policy is good politics, and I'm skeptical of these clever attempts to do good in the long run by doing bad in the short run. But sometimes wily politics works. Hopefully this will prove to be one of these times.



That said, it's not clear to me that the steel tariff decision helped create a GOP Congress. Not one of the Senate pickups in 2002 -- Georgia, Minnesota, Missouri -- occurred in a steel-producing state; of the House pickups, I don't believe any have steel workers, perhaps the Ohio 3rd district near Dayton, but the Ohio 17 near Youngstown switched from Rep to Dem.



Possibly the steel tariffs helped get trade promotion authority; possibly they'll help in the 2004 election. Was it worth the economic damage, and the political damage done by a weaker economy? I'm skeptical.

Posted by: pj at April 10, 2003 1:02 PM

Would you rather have no steel tariffs and no Hemispheric agreement? Is trade good in the particular but not in the general instance?

Posted by: oj at April 10, 2003 1:52 PM

As I've mentioned before, we buy a couple of million pounds of steel every year. This is mostly mild steel (as opposed to stainless). We have seen a sharp increase in pricing coincident with the tariffs.



Let's take, for example, 14 ga. HRPO, 48" wide. We bought a couple of hundred tons of this steel last year, so it's a low to mid range material for us. In 1999, we were buying at a price I'll call 100. This was relatively low, historically, but the nominal price of steel hasn't changed much in the last 20 years.



In 2000, the price increased to about 121, before falling back to about 101 in 2001. In the second half of '02, with tariffs threatened and then imposed, the price increased to 135 and then, over the winter, to 150. It has now come back down to 123.



14 ga. HRPO is not subject to the tariffs and steel prices are highly responsive to energy prices, in both refining and transportation. Also, the exemptions are pretty broad. It is none the less clear that the market was skewed by the tariffs. Because iron ore, or recycled steel (the most efficient mills are mini-mills that run mostly on recycled steel and which are feasting on the tariff induced pricing) can be shifted broadly among products, the tariffs have raised the price of all steel used in the US. As a result, the economy as a whole is, as PJ says, paying a high price to save (or, rather, postpone the loss of) a reletively small number of jobs. Another hidden cost is the jobs lost because of higher steel prices, which likely exceeds the jobs "saved."



I'm neither innocent nor a purist, and I understand the political calculation that the administration made. But I'm afraid that the very success of this move politically makes it more likely that the government will try to use the same tool in the future, which I will oppose even if it's not my ox being gored. I'll be all for the free trade areas, if they happen, but I'm also concerned that this method of approaching free trade gives unnecessary credibility to the proponents of fair trade; stops us from benefiting from unilateral actions to reduce tariffs and other barriers to trade; and promotes the erroneous idea that free trade is a favor we do for other countries. Finally, as PJ says, bad policy should be avoided for its own sake -- and policies with hidden costs and only political benefits are always bad policies.

Posted by: David Cohen at April 10, 2003 2:45 PM

Assuming the hemispheric agreement reduces tariffs, I'd rather have that. But that superiority is only relevant to our evaluation of the steel tariffs decision if the achievement of a hemispheric agreement is a consequence of the steel tariff decision
.



Our disagreement is in our judgment about what in fact
were the consequences of the steel tariff decision, not about how to value a given set of consequences. You and I are in agreement about what we want to achieve.

Posted by: pj at April 10, 2003 2:46 PM

One more point inspired by David's post: tariffs, and no aid, were not the only two alternatives. The U.S. economy would have done better had Bush given the steel industry and steel workers a $20 billion bailout out of taxpayer funds, and no tariffs. This would have been more honest, much less costly economically, and probably just as beneficial politically.

Posted by: pj at April 10, 2003 2:53 PM

That aklmost entirely misses the point. Tariffs weren't meant to save jobs but to demonstrate that Bush would be a "tough" negotiator on trade. This got him the Trade Authority in which he can now give away the store, because that's the right thing to do. Obviously the best thing to do would just be to remove every tariff and restriction on trade unilaterally, but that is not politically tenable. We live in the political world, not an Adam Smith dreamworld.

Posted by: oj at April 10, 2003 3:20 PM

David:



So after we factor out the 20% increase in energy costs over the past several years, the decline in the dollar, and the rise in other commodity prices (like gold) is there any evidence that tariffs in themselves have affected steel costs at all?

Posted by: oj at April 10, 2003 3:54 PM

oj - Alright, so you're saying that steel tariffs weren't meant to appeal to steelworkers, but rather to protectionists generally; and weren't intended to help in the elections, but with the agenda in Congress (trade promotion authority and treaty ratification). But are Congressional protectionists really so changable that a Bush tariffs decision in 2001 will affect their votes in 2004/2005 on free trade agreements? Maybe Bush got TPA through because of the steel tariffs, but if he lacked enough support from protectionists to pass TPA without steel tariffs, I'll hate to see how many tariffs we'll need to get a few free trade agreements ratified.

Posted by: pj at April 10, 2003 4:25 PM

pj:



The votes are always there to pass the agreements, that's why foes fight the trade authority so hard. Once you have the green light you can put anything you want in there and the GOP will pass it.

Posted by: oj at April 10, 2003 5:00 PM

oj - It takes a 2/3 vote to approve a treaty. With the Democratic obstruction strategy, it's not possible to confirm judges, much less ratify a treaty. This may be a period when a bird in hand is worth more than two birds in the bush.

Posted by: pj at April 10, 2003 5:40 PM

pj:



No, that's the beauty of Fast Track: it requires an up or down vote (no amendments) and doesn't require 2/3rds approval:



http://www.brook.edu/comm/policybriefs/pb91.htm

Posted by: oj at April 10, 2003 7:46 PM

OJ--



My best guess is that better than half the increase has come from the tariffs.

Posted by: David Cohen at April 11, 2003 10:00 AM

So, let's say a 10% increase due to energy cost, 10% due to dollar decline/commodity increase, and then 20% for tariffs. Steel today should be at 140% of what it was pre-tariff, right?

Posted by: oj at April 11, 2003 2:01 PM
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