Rust never sleeps
Adapted from The Economist, March 2002
AN AILING steel industry, a case of unfair trade before America's International Trade Commission and a president
mulling sanctions. No, this is not 2002, but 1976, when Gerald Ford was in the White House and
America's sickly steel companies were clamouring for import protection to help them back on their feet.
Twenty-six years later, the same steel makers are still flat on their backs. The quotas, tariffs, subsidies and the like (worth
well over $30 billion, according to some estimates) that America's politicians have lavished on steel companies in the
interim have clearly taught policymakers nothing. Amid widespread groans,
on March 5th President George Bush
slapped tariffs, ranging from 8% to 30%, on an assortment of imported steel products for three years—a period of
time, ventured Mr Bush's trade representative, Robert Zoellick, “that will give the US steel industry the
opportunity to get back on its feet.” The fact that the president did what everybody expected him to makes this
decision no less damaging, and no less stupid.
This steel-tariff plan, it is important to remember, lies well outside the ordinary run of bad economic policy: it is so wrong
it makes other kinds of wealth-destroying intervention feel inadequate. And was it really politically inescapable? What a
depressingly feeble excuse from a president who has promised, and shown, strong leadership in other respects, and who
had claimed, by the way, to be a champion of liberal trade. Mr Bush and his advisers should be ashamed.
The aim, says the administration, is to give the steel industry a breathing space—time to restructure and modernise to cope
with foreign competition. Much of this competition, the industry alleges, is unfair since many foreign steel companies
enjoy government subsidies. And the administration points out that firms accounting for 30% of American steel-
producing capacity have filed for bankruptcy since 1998. Yet in that time, steel imports have actually declined. History
suggests that the protection of the sort now being extended to the steel sector simply enables the industry concerned yet
again to postpone the day of reckoning.
Why protecting American steel is such a rotten idea
The principal aim of the new tariffs is to raise the price of steel on the American market, and so help domestic producers
who cannot compete with lower-priced imports.
But since America consumes more steel than it produces; consumers
would suffer far more from a tariff than producers would benefit.
Also, higher-priced steel has a direct impact on American manufacturers—it puts up their production costs.