WASHINGTON — Proving himself less principled than Bill Clinton regarding the free-trade principles that are indispensable to world prosperity and comity, President Bush has done what Clinton refused to do. In the name of providing "breathing space" for the U.S. steel industry, which has been on the respirator of protection for decades, Bush has cooked up an unpalatable confection of tariffs and import quotas that mock his free-trade rhetoric.
Do not read his lips, read his actions, which will incite protectionist clamors from other industries (timber and textiles, for starters) and invite retaliation from penalized nations. Bush’s measures probably will neither force nor facilitate the restructuring the industry needs. Economically indefensible, these measures will destroy perhaps 10 jobs in the steel-consuming sector of American manufacturing for every steel-making job they save. Some manufacturers will move out of the country to avoid the tariffs.
Bush’s measures are new taxes on American consumers — approaching $1 billion annually just on purchasers of cars and trucks — and are purely political measures. Think of them as an $8 billion contribution coerced from manufacturers and consumers of steel products, for the benefit of about six Republican congressional candidates in steel-producing districts, and for Bush’s re-election campaign.
A week ago, Leo Gerard, head of the steelworkers union, spoke with more passion than hope as a bowl of uneaten raisin bran went soggy in front of him. He said with asperity that European labor leaders were urging him to back a 20 percent tariff because it would have negligible effects on exports to the United States — European steel companies would absorb the cost. But Gerard is pleased by Bush’s plunge into industrial policy, so discount Gerard’s prediction of a "meltdown" of America’s steel industry absent a 40 percent tariff to push steel prices high enough to give companies access to affordable capital needed for modernization.
Gerard says government assumption of at least $10 billion of the companies’ "legacy costs" — the costs of retirees’ pensions and health care (there are 600,000 retirees and dependents, four times more than active steelworkers) — is a prerequisite for the necessary consolidation of steel companies. Emboldened by Bush’s conversion to economic interventionism, Congress may do what Bush did not do regarding legacy costs.
Gerard says the industry has achieved stunning productivity increases. U.S. Steel Corp. requires 2.4 man-hours per ton, down from 10 hours in 1984. But that, he says, is not enough, given competition from, for example, 1,000 inefficient but heavily subsidized Russian mills that pay workers less than $200 a week. He says Gulf State Steel in Gadsden, Ala., one of 31 companies that have filed for bankruptcy in the last four years, was not saved by being among the industry’s most efficient companies in terms of man-hours required, emissions produced and energy used per ton.
Gerard complains that U.S. companies compete with the likes of the just-formed Arcelor, a 50-million-tons-a-year company produced by the merger of three of Europe’s largest steel companies (from France, Luxembourg and Spain). Gerard says Arcelor will derive competitive advantages from subsidized capital, coal, iron ore and energy, and from government assumption of the legacy costs of the companies from which it is formed. But now that Bush is increasing subsidies — that is what tariffs and import quotas are — for the U.S. industry, America has forfeited its right to complain.
Gerard knows that "national security" is the incantation that currently trumps common sense in Washington debates, and he conjures a nightmare of U.S. dependence on a few foreign steel companies — an OPEC-like cartel — conspiring in Geneva hotels. By next week timber and textile interests will have honed their national security arguments for participating in Bush-era protection.
Unfortunately, Bush’s policy will delay needed restructuring of the steel industry. Fortunately, it will fail to "save" the industry as it is. Bush’s economic advisers are too intelligent to believe what others in the administration say when, defending protection of steel, they adopt the time-worn protectionists’ patois about "fair" trade on a "level playing field." The economic advisers understand the fecundity of free trade, the logic of nations’ comparative advantages, the inevitable escalation of inefficiencies under protectionism, the resilience of American industry when forced to accommodate market forces, and the catastrophic costs of any trade war.
So this policy reflects the triumph of the Bush political advisers who trumpet their admiration for President McKinley, that paragon of Republican protectionism — compassionate conservatism for government-addicted corporations. Bush’s steel policy is what results when intelligent people take up intellectual slumming — abandoning of proven free-trade principles — for the pleasure of political opportunism.
George Will can be reached at The Washington Post Writers Group, 1150 15th St. NW, Washington, DC 20071-9200.
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