Of candles and steel

October 05, 2003

FRENCH CANDLEMAKERS, the 19th century economist Frederic Bastiat wrote in a famed satire, so suffer "ruinous competition" from the sun "flooding the domestic market" with its superior light that the government must mandate "the closing of all windows, dormers, skylights ... all openings, holes, chinks and fissures through which the light of the sun is wont to enter houses."

This biting attack on such interventions comes to mind as President Bush faces the highly charged decision of whether to drop or reduce tariffs running as much as 24 percent that he placed on steel imports in March 2002. The tariffs were a gift to once-Big Steel - awash in bankruptcies, retiree health care and pension costs, production overcapacity, and a surge in imports. They stemmed not from economic logic, but from a political play to Rust Belt states.

Halfway through the tariffs' three-year term, they're not surprisingly hurting the overall U.S. economy and - surprisingly - not helping the president politically. A just-completed midterm review by the International Trade Commission now gives Mr. Bush an unusual second chance - to undo the damage.

In the last 18 months, U.S. steel prices have risen and imports have fallen; steelmakers have further consolidated, a process not necessarily hastened by the tariffs. The costs of this have come from higher prices paid by U.S. steel consumers, and a leading steel analyst, Gary Hufbauer of the Institute for International Economics, says the gains largely went not to steelworkers but to the creditors of bankrupt steel firms, whose asset values were inflated by the tariffs.

The midterm ITC report tried to sidestep the damage, pinning the tariffs' cost to U.S. steel consumers at $680 million and then absurdly claiming that was offset by the government's collection of $650 million in tariffs. The report oddly didn't tally job losses, but other studies show more losses among steel users than steel-making jobs saved - for a net loss of about 26,000 jobs annually, Mr. Hufbauer estimates. Later this fall, U.S. costs could rise even more as the World Trade Organization is expected to side with the European Union's claim that the tariffs are illegal and warrant EU levies on $2.2 billion of U.S. exports a year.

Moreover, the tariffs are backfiring politically, as manufacturing job losses likely are so pervasive as to swamp electoral gains from protecting fewer than 150,000 steelworkers. Steel-using industries, with many more workers and greater geographic diversity, are organizing aggressively against the costs that have been dumped on them. Even the steelworkers union has abandoned Mr. Bush, endorsing Democratic Rep. Richard A. Gephardt's extreme protectionism.

Big Steel is frantically lobbying for these tariffs, but continuing them likely will deter, not encourage, the industry's most pressing need, its next stage of restructuring toward greater efficiency - as has been achieved at Baltimore's Sparrows Point mill. If this transition requires government help, it ought to be aimed specifically at better funding retirees' costs and cushioning laid-off workers' transitions to new careers. These so-called steel safeguards too much echo the sort of distortions satirized by the French candlemakers' petition - and ought to be rejected by Mr. Bush.

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