Tuesday, April 9, 2002 Volume 67, Issue 126


 
 









 

President Bush makes compromises

Thomas Asma

President Bush's decision to take action under Section 201 of the Trade Act of 1974 to protect the steel industry precipitated an expected deluge of
outrage from economists, Wall Street Journal opinion writers and various interests, despite a unanimous ruling from the U.S. International Trade
Committee endorsing such measures. All of the detractors lambasted the president as weak and politically self-serving, which is far from the truth. The
decision was a principled compromise made with the best interest of the country in mind.

The arguments against saving steel in America are all economic in nature. If tariffs are imposed, domestic steel companies can charge more, the
price of steel will increase and the price of products that use steel will increase, including everything from automobiles to household appliances. This
is true, but steel is a small share in the total costs in consumer products. MIT economics professor Jerry Hausman has amassed a Consuming
Industries Trade Action Coalition study that forecasts high inflation due to steel tariffs. He concludes that according to the study's model, the average
price increase in the cost of a car would be about $2.

Economic consequences are by no means the whole picture. President Bush had to consider many factors before coming to this conclusion, and the
trump card here is national security. Oil has taught America that it is bad policy to rely on foreign entities for any commodity. This creates coercive
power to use against the United States and spawns little delights like the Organization of the Petroleum Exportating Countries. It is essential for the
well-being of our country to have a dependable and viable steel industry.

Some complain that the U.S. steel industry uses dumping tactics domestically, as foreign steel producers did to harm America's steel. Once again,
this is true, but flawed logic. This situation is an international trade matter, not an interstate trade issue. Anti-dumping laws only apply to foreign
producers, not domestic, and these laws need to be enforced to protect against harm stemming from politically motivated trade crises.

One of the biggest concerns of European steel producers is not the cost of importing to the U.S. market, but rather the flood of steel into their market
that will ensue after the implementation of these tariffs. The European Union has assured these companies that this will not happen. This highlights a
tendency by all countries to shield industries from gluts in production.

Countries that produce far more steel than they can consume have brought about the glut in question: excess steel capacity throughout the globe.
China only produces enough steel to supply its own market, whereas Russia, former Soviet Socialist Republics, and other countries' steel producers
produce much more steel than they can consume, and sell it cheaper because their government subsidizes them so heavily. Eager producers then
bring it to the largest market in the history of the world, the United States. Speaking of subsidies, President Bush denied the steel industry the
subsidies it had requested, the assumption of debilitating legacy retiree costs to the tune of $12 billion.

These were generous contracts negotiated decades ago under pressure from the Truman, Eisenhower and Kennedy administrations that have
become the unreasonable debt load today.

Bush denied subsidies for steel, but imposed lawful tariffs to protect it from unfair trade. The U.S. ITC recommended tariffs of 20 percent and the steel
industry asked for 40 percent; Bush imposed 30 percent. In these ways, the president made reasonable and intelligent compromises, laying the
groundwork for free trade by respecting fair trade and making a level playing field.

Asma, a junior finance major, 
can be reached at thomas_asma@hotmail.com.


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