Protectionism backfires

December 05, 2003

TWO HEADLINES on the business page the other day tell the story:

"Officials OK free-trade plan"

"Greenspan sounds warning about `creeping protectionism'"

When it comes to free trade, the Bush administration's commitment ends where domestic politics begin - making for counterproductive economic and foreign policies.

Yesterday, the president wisely lifted tariffs he applied to steel imports last year. The administration cast the tariffs as having boosted the steel industry. But their end was a rare reversal by this White House.

U.S. Sen. Barbara A. Mikulski, long a voice for Sparrows Point steelworkers, criticized the president. Lifting the tariffs is "bad economic policy, bad trade policy and bad foreign policy," she said.

She's wrong about that.

These steel tariffs may have provided some incentive for the industry to reorganize, but the gains mainly accrued to bankrupt firms' creditors, not steelworkers, says a leading economist, Gary Hufbauer. And the tariffs translated into big losses for a much more extensive sector of the economy: firms that use steel, such as General Motors, with its plant on Broening Highway for which Senator Mikulski also has been an ardent advocate.

In their first year, according to the International Trade Commission, these tariffs cost the American economy about $680 million; Mr. Hufbauer calculates the net U.S. job loss at more than 20,000. The tariffs also verged on provoking a trade war, with the European Union and Japan vowing to respond with punitive tariffs on American products.

You'd think this administration would learn. But even in the run-up to taking back this gift for such steelmaking states as Pennsylvania and West Virginia, it gave new quotas on Chinese bras, robes and knit fabrics to South Carolina and other textile-making states. TVs reportedly are next.

China is a handy scapegoat. But as with steel, the U.S. textile industry's problems transcend Chinese competition. The quotas already threaten possible retaliation from China, now America's fastest-growing export market. Economically, any benefits from the quotas don't measure up to U.S. gains from the Chinese export machine's deep reliance on foreign capital and commodities and China's large purchases of American debt. U.S. investors and vendors profit there, and U.S. consumers and borrowers benefit from lower prices and interest rates. Resulting U.S. job losses have been less severe than in Mexico and the rest of Asia.

Around the world, America is trying to knock down trade barriers with the message: Free trade benefits both sides. The steel tariffs made a lie of that effort. The most promising thing about this saga is that the tariffs also backfired politically for the president, threatening to cost him more votes from heavy steel-using states than gained from steelmaking states - a lesson in political economics that we hope sticks.

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