11.11.2003

FURTHER PROOF GOOD POLICY IS GOOD POLITICS
Wall St Journal Editorial

Bush's Steel Opening

The World Trade Organization surprised no one yesterday when it once again ruled that the 30% steel tariffs the Bush Administration imposed in 2002 are a violation of global trade rules. Now the question is whether the Administration will use the verdict as a convenient way to extricate itself from the tariffs. The other option is to sit by as the world levies billions in retaliatory duties.

The U.S. appeal to the July WTO ruling against the tariffs never had a snowball's chance in a steel furnace of success. It was, however, a way to delay global trade retaliation until at least September. That marked the midway point of the three-year tariff span and the first opportunity for President Bush to decide whether to dump them. This second WTO ruling gives him another opening, and we can only hope he's realized that this protectionist ploy has been a bust from every angle.

The industry argues that the tariffs gave it the breathing space to do the restructuring it had avoided for decades, and there's no doubt the levies have padded U.S. steel margins. But they haven't stopped the inevitable process of bankruptcy (and walking away from pension and retirement obligations) as well as labor re-negotiation. All of this would have had to happen even if the Administration hadn't abandoned its free-trade principles.

Meanwhile, the tariffs imposed a toll on the rest of the economy -- in particular on steel users. U.S. manufacturers that consume steel for products ranging from cars to toasters watched domestic steel prices jump by more than 30%. The International Trade Commission, which released a report at the tariffs' September midpoint, found that in their first year the levies inflicted a $680 million hit on the U.S. economy.

A study done earlier this year for the Consuming Industries Trade Action Coalition went further. It found that higher steel prices cost 200,000 American jobs and $4 billion in lost wages from February to November 2002. Those 200,000 jobs were more than the total number of people employed by the U.S. steel industry itself. That's one reason more than 200 companies and organizations representing steel-consuming and related industries sent Mr. Bush a letter last month begging for relief.

Meanwhile, the strategy of using the tariffs to score political points has backfired. The tariffs have done nothing to win over protectionists, as evidenced by the growing number of blue-collar union endorsements of Democrat Presidential contender (and anti-free-trader) Dick Gephardt. Karl Rove might also note that a disproportionate number of the steel-consuming jobs that have been lost are in key battleground states like Florida and Pennsylvania, which Mr. Bush needs if he is to win re-election.

If the tariffs don't go, all this will only get worse. The European Union, Japan, China, Norway and others are already busy polishing their lists of U.S. goods on which they could impose big retaliatory tariffs. The lists are designed to inflict maximum economic and political pain, hitting popular products from key electoral states. The EU's short list includes T-shirts, fruit juices, toilet paper, pantyhose, notebooks, watches, ballpoint pens, rowboats and apples. EU Trade Commissioner Pascal Lamy made clear that within 35 days Europe would impose tariffs that could reach $2.2 billion. This would dwarf the ITC's $680 million estimate of damage already done.

The best solution is for the Administration to recognize the WTO decision for what it is: a golden opportunity. The U.S. economy is showing signs of recovery, but nothing is certain. By citing the verdict and dropping the tariffs now, Mr. Bush can further aid the economy, in particular one sector that is still struggling to get on board the recovery train: manufacturing. Along the way, he'll save other industries from big hits to their exports. And by complying with global trade rules, the U.S. will gain needed credibility in its attempts to get free-trade talks back on track.

The WTO verdict also offers the best hope for some political cover. The Administration might take its cue from Republican Representative Pat Toomey, who is fighting a tough Senate primary battle in the steel-sensitive state of Pennsylvania and who has been supporting the tariffs. A few weeks back, however, Mr. Toomey noted that the economy was stronger and that the steel industry had gone through consolidation. He suggested that now was a good time to "re-evaluate" and reminded his constituents that "tariffs have a cost; tariffs have a downside."

We'd call that the understatement of the Bush Administration's tenure. Mr. Bush is now perfectly positioned to put aside these costs and downsides and instead provide a further boost to the economy in the run-up to Election Day. Let's hope he grabs that chance while he can.

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