From the WSJ Opinion Archives
OUTSIDE THE BOX
Bush's Steel Crucible
Will he help a big industry at consumers' expense?
Americans are caught in a steel trap. Lower consumer prices are good for the economy--especially in a recession--and good for fighting wars. But the politically powerful steel industry is addicted to protective tariffs. So Congress and President Bush may use the cover of war and recession to raise the cost of living for all of us.
Sometime between now and mid-February, high tariffs--maybe 20%--are likely to be imposed on imported foreign steel to protect the profits and the jobs of American steel manufacturers.
Let's be plain: Steel tariffs are a bad idea--bad for the steel industry; bad for governments that use steel in bridges and other public infrastructure projects (not to mention all the steel used by the military); bad for consumers, who will have to pay more for not only cars but all products that use steel; and bad for taxpayers, who will have to cough up billions of dollars to cover additional industry subsidies.
The ITC weighed in on Oct. 22, finding "serious injury" in regard to various steel products. On Dec. 8 the ITC made its recommendations: 20% tariffs on 16 steel product lines that account for nearly 80% of imported steel. The list includes flat rolled and slab steel, used in cars, microwave ovens and fire extinguishers, among other things. That means consumers will pay more for all these items. The president has until Feb. 19 to decide what to do.
The steel industry wasn't satisfied; it wants tariffs of up to 50%. That would drive up sales of domestic steel and thus hand the industry a $10 billion windfall. On top of that, steel makers wants $13 billion to pay health-care and pension benefits to retired steel workers. The Congressional Steel Caucus managed to round up 226 sponsors--a House majority--for a bill to cover the first $2.5 billion.
Meanwhile there has been talk of a massive merger of large U.S. steel companies and of creating an international cartel to raise prices by limiting steel production. In December, 40 steel-producing nations met in Paris and tentatively agreed to close down 97 million tons of steel-producing capacity over 10 years. But the fine print shows that that is conditional on the U.S. not imposing the tariffs the ITC recommends. So President Bush is in a bind. Maybe he intended the Section 201 process only as a spur to an international agreement, or maybe he intends to go protectionist. Perhaps he will find a third way, but it seems likely consumers will be paying more.
From a consumer's perspective, productivity increases and declining prices are, of course, good news. Higher productivity means a stronger economy, while lower steel prices mean lower costs for products. Stanley Tools reported a few years ago that the cost of steel was 58% of the cost of a hammer. Cheaper steel means cheaper hammers.
The bad news is the cost of protectionism to the consumer and the taxpayer. The Institute for International Economics in Washington estimates that the cost of imposing 20% tariffs on imported steel would be $2.4 billion in the first year and $7 billion over the four years the ITC recommended. It would save 7,300 steel jobs, at a cost of $326,000 per job. Of course somebody--taxpayers or consumers--has to pay the $7 billion.
A healthy American economy requires aggressive competition in the international marketplace rather than withdrawal behind tariff barriers. Protection of the domestic steel industry against foreign competition will ultimately mean obsolescence in the U.S. steel industry and the loss of the very jobs protectionists seek to save.
Surely the administration understands all of this. But whether it will act on that understanding is something else. We will know by Valentine's Day.
Mr. du Pont, a former governor of Delaware, is policy chairman of the Dallas-based National Center for Policy Analysis. His column appears Wednesdays.
