A Promise Made, A Promise Kept

President Bush's decision on steel tariffs last month was not that surprising to anyone who paid close attention to the 2000 presidential campaign. During a swing through West Virginia and Pennsylvania, then-vice presidential nominee Dick Cheney pledged to steelworkers that the Bush administration will "vigorously enforce" antidumping laws –another way of saying it will enact tariffs on imports of foreign steel.

Was George Becker ever wrong. Becker, then-president of the United Steelworkers Union of America, pushed hard for Al Gore during the campaign because he knew he would always have Gore's ear. "With a Bush administration, it will be just the opposite," Becker said two months before the election. "We might not even be allowed in Washington."

So much for that prediction. A year and a half later, the steelworkers' union is as pleased as punch with President Bush's decision. They did not get the 40 percent tariffs they were shooting for, but they certainly aren't complaining about the 30 percent tariffs they did get.

Everyone else should complain, though. This is a textbook case of a special interest profiting at the expense of the general interest, a process so eloquently described in Mancur Olson's classic "The Rise and Decline of Nations" and more recently in Jonathan Rauch's "Government's End: Why Washington Stopped Working." Organized groups – in this case steel companies and steelworkers' unions – work the media and lobby politicians to win government policies that redirect billions of dollars to them and away from everyone else. And because of the concentrated, highly visible payoffs of the policy versus the dispersed and hidden costs, the incentive to agitate in favor of it is much greater than the incentive to agitate against it. That is why thousands of pro-tariff steelworkers rallied outside the White House on the day President Bush made his decision, yet hardly anyone rallied against the tariffs.

Most Americans don't buy steel directly, so they won't see the immediate jump in steel prices. They only buy products that contain steel, such as cars. If car prices rise, they won't know if the steel tariffs were the main culprit, since so many factors determine a car's price. Because of the well-hidden cost of tariffs, the steel lobby has an enormous advantage in the political arena.

Contrast that to the oil industry. It can't get away with antidumping (tariff) suits because the costs are so visible to consumers whenever they fill up their gas tanks. In 1999, when oil prices were so low, a group of oil companies tried to get oil tariffs enacted. Sure enough, their case was thrown out in the early stages.

The oil industry juxtaposition also illustrates the silliness of one of the most common arguments invoked on behalf of steel tariffs: "overcapacity" in the steel industry – the idea that subsidized foreign steel companies are producing "too much" steel.

You cannot produce too much of something unless it's useless, it's harmful to humans, the raw materials are getting depleted, or the production process is ruining the environment. None applies to steel. (While some environmentalists may make the last claim, it is certainly not part of the steel industry's argument.)

Few ever complain about overcapacity in the oil industry. In fact, most people cheer, thanks to low oil prices' visible impact on consumers. In many countries, governments not only subsidize their oil companies, they own them outright. Such "unfair trade practices" certainly do not negatively impact the US oil industry. Quite the contrary. Free trade in oil forces US oil companies to be lean and efficient. The same would characterize US steel companies if free trade in steel were allowed. And we consumers would enjoy the low prices that come with it.

As indicated above, the real decision to impose steel tariffs was not made last month, but in October 2000. If the Bush administration wanted to stay true to its word, it was obliged to follow through on its earlier pledge to the steel industry – however contradictory that was with its general support for free trade. The fact that in politics one often trades in some of one's idealism for a little realism probably explains the campaign pledge. Some claim that without the pledge, Bush could have lost West Virginia and therefore the election. However, that is a big 'could have.' It is far from certain West Virginia would have gone to Gore.

But the original deed was done. Now the question is, did the President really have to give the steel industry 30 percent tariffs? A 20 percent, 10 percent, or even 5 percent tariff rate still would have kept him to his campaign pledge. Of course, zero percent would have achieved the best outcome – for the steel industry and everyone else. But sadly, all too often, the invisible hand of free trade is no match for the angry fists of the protectionists.

About these ads
Sponsored Content by LockerDome

We want to hear, did we miss an angle we should have covered? Should we come back to this topic? Or just give us a rating for this story. We want to hear from you.

Loading...

Loading...

Loading...

Save for later

Save
Cancel

Saved ( of items)

This item has been saved to read later from any device.
Access saved items through your user name at the top of the page.

View Saved Items

OK

Failed to save

You reached the limit of 20 saved items.
Please visit following link to manage you saved items.

View Saved Items

OK

Failed to save

You have already saved this item.

View Saved Items

OK