Import Tariffs’ True Costs

President Clinton may not have been the most adamant free-trader to occupy the White House, but he did resist political pressures from the U.S. steel industry for tariffs on steel imports. President Bush, who often touts his belief in free trade in a globalized marketplace, should do the same.

For every job that tariffs on steel imports “save” in old and increasingly obsolete companies, the overall U.S. economy ends up losing up to 13 jobs as a result of the economic drag of higher steel prices to manufacturers. Fewer washing machines get sold, and the washing machine assembly line worker gets laid off.

Bush should not put an anchor on the economy just to save a segment of U.S. heavy industry, concentrated in the old Rust Belt, that has been in decline for 25 years and has little future in a globalized economy.

For decades, the steel industry has, with varied success, asked U.S. administrations to impose tariffs on foreign steel. Last December, Bush’s Commerce Department unfortunately ruled that a tariff of up to 40% was justified for some steel products. One member of the department’s International Trade Commission was quoted as saying that the ruling was meant to give Bush “leverage” during global trade negotiations to reduce production. Yet by the time this recommendation was made, the top steel-producing nations had already agreed that a 10% cut in worldwide production would be feasible.

The U.S. steel industry is really two different industries. One employs about 100,000 people and has failed to modernize its large, increasingly unprofitable blast furnace operations. The other is composed of modern “mini-mills,” smaller plants with high-tech electric furnaces. Today, these mini-mills produce the full range of steel products and their share of the U.S. market is up to 45% from a mere 10% a quarter-century ago. They don’t need or ask for protective trade barriers because they are cost-efficient and profitable even at today’s prices.

U.S. trade law says that any final remedy imposed by the president must “provide greater economic and social benefits than costs.” Bush has until March 6 to decide his course. He should reject tariffs that serve only to protect outdated businesses at a high cost to consumers and workers.