Twenty months ago, the Bush administration determined that imports of steel were injuring our domestic steel industry and proceeded to impose tariffs on those imports.
The European Union, a target of the tariffs, complained to the World Trade Organization, as the EU has a right to do, asking it to declare the tariffs illegal under the WTO rules the U.S. long ago signed on to. The WTO this week agreed with the EU and laid out a choice for Washington: Either get rid of the tariff or the Europeans will have the right to impose retaliatory tariffs. And they will impose them.
From the get-go, the steel tariffs were foolish. Steel imports were declining when the tariffs were imposed, and the tariffs were arbitrarily imposed on some foreign producers (Europe) but not others (Canada and Mexico).
Moreover, there were better ways to help steel workers directly -- like picking up the tab for steel companies' "legacy costs," such as pensions and retirement health coverage. That might cost a few billion bucks, but it would be cheaper than making the entire economy pay for higher prices for steel.
Anyone in business understands that you don't improve an industry's prospects by removing the competition. In fact, for every job in the steel industry that might have been saved, more than one has probably been lost in industries like autos or construction, which pay more for protected steel now that imports are penalized.
But there were politics: Steel workers were concentrated in battleground states such as West Virginia and Pennsylvania. So sound policy lost out.
The Bush administration is now confronted with a stark choice. It can either roll the tariffs back or defy the WTO and face European retaliation. When you size it up, it's a no-brainer.
Rolling the tariffs back might pinch the constituencies the tariffs were designed to help. But the administration would be on solid ground in arguing that the economy is better and the problem that steel producers face is less severe. It could still offer to pick up some of the industry's aforementioned legacy costs when the tariffs were dropped.
But if the U.S. sticks with the tariffs, the European Union will surely retaliate now that it has the authority to do so. And it will pick targets as politically sensitive as the U.S. steel industry itself -- Florida's citrus industry, Pennsylvania's Harley-Davidson plant, apples from Washington state, all, once again, in electoral battlegrounds. And then there will be a predictable clamor among the wounded about the WTO being some kind of a "secret court" (forget that we ratified the treaty giving it its authority) and about how the "old" Europeans are unfairly victimizing innocent American orange growers and chopper manufacturers (leaving aside what we did to invite this action).
The odds that the administration, if it chooses this path, will defend the WTO against such falsehoods and slander -- particularly when it's echoed by the chorus of Democratic presidential aspirants -- are slim to none.
This will be more than just another policy circus. The trade war the U.S. risks starting if it fails to act rationally could reverberate throughout the world economy. The WTO trade talks are already foundering after their collapse in Cancun in September. If the U.S. becomes a WTO outlaw, we will have compromised dramatically our chances of reaching a global trade agreement (at least on terms favorable to the United States).
Moreover, our insistence on rule-breaking will send a strong signal to such important emerging economies as China and India that rules are only as meaningful as we want them to be. At a time when we are concerned about these economies' growing productivity, it's vital that we bring them into the trading system, with all of its rights and responsibilities. Yet what incentive do these economic adolescents have to sign up to adult trade responsibilities, if these responsibilities are ignored by the greatest power on Earth?
And underneath all of this is a growing fear by the U.S. business community that the U.S. is rapidly isolating itself in the world community. It started by walking away from international agreements on climate change and a world criminal court. It presented the world with a unilateralist doctrine in the Iraq war and rejected the concern that our involvement there was precipitous, if not ill conceived (and is now coming back to the rest of the world, palms up). Now we risk embarking on a trade war in support of our unilateral right to pick which of our obligations we will honor.
None of this makes sense. The United States is the greatest economic power on Earth. We used that power after World War II to build institutions and rules that created decades of global economic growth. But we now seem more intent on using our power to throw our weight around.
If we choose to ignore the WTO decision and keep our steel tariffs, we will weaken the world's rules and institutions. It's a choice we will regret.