Sunday, April 6, 2003

Steel tariffs: Unintended effects cost U.S. jobs

By Pete du Pont
Guest Columnist

WASHINGTON - The Bush administration has sought successfully to free and expand trade. Congress passed Trade Promotion Authority and Chile was added to the list of U.S. free-trade partners. The president has proposed a Free Trade Area of the Americas and is pursuing the Doha round of World Trade Organization negotiations in order to eliminate tariffs, quotas and subsidies worldwide.

However, on the path to free trade the president took a detour down the Smoot-Hawley highway of protectionism by imposing tariffs ranging from 8 percent to 30 percent on many varieties of imported steel.

The current tariffs on steel were imposed last year after intensive lobbying by U.S. steel makers, and are supposed to run three years.

The president can impose tariffs and quotas when imports of a product threaten to injure the competing U.S. industry. But the "safeguard" duties on steel weren't imposed because foreign producers were pricing their steel below cost or because overseas markets were unfairly closed, but simply because some American steel producers can't compete at going prices.

In the category of unintended consequences, however, businesses that purchase or consume steel - including farmers, retailers, builders, manufacturers and energy suppliers - say they lost more jobs last year due to rising steel prices than the total employment in the steel industry.

According to U.S. Labor Department data, employment in steel-consuming industries declined last year by 370,600 jobs. In a study for the Consuming Industries Trade Action Coalition, economists Joseph Francois and Laura Baughman found that as many as 200,000 of those jobs were lost to higher steel prices. By comparison, American steel companies employ only 190,000 workers.

The reason is that trade restrictions are causing supply shortages of raw materials, higher prices and delays. In many cases, the end result is an increase in imports of finished, or value-added, products from overseas.

Francois and Baughman estimate that higher steel prices have cost at least 4,500 job losses in no fewer than 16 states, and lost wages amount to $4 billion. And according to Ben Goodrich, a trade analyst at the Institute for International Economics, about half the rise in steel prices is due to the tariffs.

Interestingly, after initially plummeting, steel imports rose in 2002. The American Iron and Steel Institute says this is largely the result of the 727 exclusions to the tariffs that the administration has granted over the last year.

Yet the American Institute for International Steel, which opposed the tariffs, says imports of finished steel products were unchanged, and that the increased imports were due to domestic steel companies buying unfinished products, like steel slabs, from foreign markets to process here.

World Trade Organization rules and domestic law require that the U.S. International Trade Commission, a federal agency, conduct a mid-point review of the three-year tariffs in September 2003.

Now, only U.S. importers, foreign and domestic producers, and labor unions may be full parties in ITC trade remedy cases.

The 2002 steel tariffs were a bad idea. We can only hope that in next September's mid-point review, the Bush administration will draw the same conclusion and move to do something about it.


Pete du Pont is policy chairman of The National Center for Policy Analysis, www.ncpa.org. Readers may write to him at NCPA/DC, 655 15th Street NW, Suite 375, Suite 720, Washington, D.C. 20005.

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