I do not have a whole lot of faith in government, especially the one in Washington. Most of its domestic functions could be executed far more efficiently and effectively at the local level.
However, the one domestic area I do think the government can affect is the economy, and it is primarily on that basis I choose my elected representatives. That is why I sit here dismayed I voted for an anti-free-trader who just made one of the worst economic decisions in recent history, a mistake that will affect everything from the country’s nascent recovery from recession to the war on terror.
Yesterday, President Bush imposed tariffs of up to 30 percent on a wide range of steel imports. Ostensibly the reason for the tax was to help U.S. steel makers recover from their current financial duress, become competitive, and in so doing, save jobs.
But a tariff will not cure the ills facing “Big Steel,” and it will cost more jobs than it will save. In addition, the tariff will be paid by every consumer in the United States, hinder our recovery from recession, blunt the push for free trade, and hurt the war on terror.
Let’s start with “Big Steel.” The first thing to understand is that not all U.S. steel mills are facing financial hardship. Sure, the old integrated steel companies, with their out-of-date blast furnaces, are losing billions, but that is because they are inefficient, not because of cheap imports.
There is another steel industry in the United States called “mini-mills,” which operate on a much smaller scale and use more efficient electric-arc furnaces. These mini-mills enjoy a cost advantage of over 20 percent in comparison with the old integrated mills. In monetary terms, according to World Steel Dynamics, a metric ton of steel costs integrated mills $481, mini-mills a mere $376.
It is the nature of the market to reward efficiency, and that is why mini-mills are making a profit even as integrated mills bleed money. It would be good for the economy if these wasteful behemoths went bankrupt so the wealth devoted to them could be better spent elsewhere. In fact, that will happen with or without these tariffs.
“But what about the workers?” you ask. I ask you the same thing. What about the workers in industries that use steel? Everything from cars to appliances to office equipment will now be more expensive, forcing manufacturers to trim costs and cut jobs. The Brookings Institute has estimated the 30 percent tariff will cost anywhere from 15,000 to 64,500 jobs, while only saving 4,800 jobs in the integrated mills.
Moreover, those higher costs will not be borne simply by the workers in steel-intensive industries. Manufacturers will also raise prices to compensate for the higher price of steel, costing the average American family $283 per year, according to a study by the Consuming Industry Trade Action Coalition and the Heritage Foundation.
This double whammy on industry and consumers (who ultimately pay the cost of all taxes and tariffs) is the last thing the United States needs as it emerges from a recession.
The long-term consequences of this decision will be just as devastating. President Bush just destroyed the credibility of the United States on free-trade issues. This will make future trade agreements, like the proposed Free Trade Area of the Americas, much more difficult to negotiate.
This has a twofold effect. American consumers will be forced to pay more for products than they would have, limiting our standard of living. The consequence for developing countries is worse — as I wrote a few weeks ago, free trade is their only way out of poverty, but that way is now much more difficult (incidentally, developing countries will be among the hardest hit by this tariff).
On a wider lever, this action by the United States will cause international dispute and trade wars at a time when we should be helping our friends and strengthening our relationships. Already the E.U. is threatening action and tariffs of their own (which will again cost American consumers), and our relationship with steel-producing allies in the war on terror, such as Turkey and Russia, will be, at best, strained.
In short, nothing good will come of these tariffs — except for one thing (at least for President Bush). He will pick up a few votes in key election states such as West Virginia and Pennsylvania, while we pay the bill.
President Bush said he would change the tone in Washington — operate on principle, not politics like his predecessor. Consider the tone as ugly as ever, and my cynicism that much deeper.
Benjamin Thompson ([email protected]) is a senior majoring in political science.
