Bush's folly An EU rush to retaliate would compound the damage
" And the crisis in steel is global: worldwide, although companies
are working at only 77 per cent of capacity, production
exceeds demand by 100 million tonnes a year. Mr
Bush's act has weakened the chances of international
agreement to deal with this surplus capacity."
thetimes.co.uk
A mere two months ago George W. Bush chided
Americans seeking to "shut down trade" for lacking
confidence in American workers, entrepreneurs and
products. Now, in a political gesture to the US steel
lobby and to swing voters in politically sensitive rust-belt
states, the President has delivered his own vote of no
confidence. This short-sighted act recalls his father's
fateful decision to raise taxes, having promised the
opposite and invited voters to "read my lips".
The punishing import tariffs he has authorised will not
save the US steel industry, where 31 companies have
filed for bankruptcy since 1997. It has resisted
consolidation for too long; fat benefits paid to retired
steelworkers, of whom there are now 600,000, are
alone enough to drive most of them to the wall and the
Administration is not going to pick up that bill. And the
crisis in steel is global: worldwide, although companies
are working at only 77 per cent of capacity, production
exceeds demand by 100 million tonnes a year. Mr
Bush's act has weakened the chances of international
agreement to deal with this surplus capacity. It is
politically foolish; and it makes no economic sense.
The first thing for America's indignant trading partners
to remember is that these tariffs will backfire. They will
cause many more job losses in other sectors of the US
economy than can conceivably be saved in its
floundering integrated steelmills. The weakness he has
shown may hurt Mr Bush's own high standing, based
as it is on the resolution he has shown in meeting the
terrorist threat. That is America's business. But,
because US leadership in opening markets is as
crucial now as it has always been, this ill-considered
act could also cripple the fresh effort, launched last year
at Doha, to boost global growth by further liberalising
international trade. That is the world's business.
In trade disputes, it always pays to turn the other cheek.
That is because tariff walls are an own goal. This is true
even for the sectors that demand protection; they lose
the incentive to recover their competitive edge by
restructuring. But protectionism also harms the whole
economy. In the US, it is a long time since steel was
king; vehicle and other manufacturers now employ 50
times as many workers. The steel they use will now
cost more, driving up production costs, affecting both
profit margins and consumers of their goods. In a
globalised economy, that will tempt more US
companies to shift production to countries where costs
are lower. Thanks to this futile effort to preserve
unviable jobs in steel, US labour will be less
productively employed than it should be.
America, in other words, is about to hand advantages to
its competitors, not harm them. If the European Union
were to raise its own tariffs, that would damage
Europe's economies too. That is not, however, how
Russian, Asian and European steelmakers
understandably feel about being effectively excluded
from the US market. However valid they are, when one
country raises tariffs the classic arguments for free
trade get drowned out by shrieks of pain. Russia,
foremost among the cash-strapped countries the US
should be nurturing in the campaign against
international terrorism, stands to lose $1.5 billion in
export earnings. With elections looming in France and
Germany, the US is not the only country where
short-term electoral calculations will win out over the
national interest. Even in Britain, Patricia Hewitt has
sworn to erect "safeguards" against "a flood" of cheap
Asian steel. Tony Blair should swiftly rein her in.
The EU will rightly haul the US before the World Trade
Organisation for this fresh breach of its rules. If the EU
targets America's steel-producing states, as it exacts
the compensation for disguised US export subsidies
the WTO has already authorised, that is Mr Bush's
funeral. But outsiders must at all costs avoid retaliatory
tariffs. Widening this war would hurt the world far more
than this single bit of protectionism could ever do. Mr
Bush has done damage enough. The natural political
instinct is to repay him in his own coin. It is an instinct to
suppress.
thetimes.co.uk |
