Continuously from what I can tell. another Bush fiasco: Steel Tariffs Appear to Have Backfired on Bush
Move to Aid Mills and Gain Votes in 2 States Is Called
Political and Economic Mistake
A study backed
by steel-using companies concluded that by the end of last
year, higher steel prices had cost the country about
200,000 manufacturing jobs, many of which went to China.
By Mike Allen and Jonathan Weisman
Washington Post Staff Writers
Friday, September 19, 2003; Page A01
In a decision largely driven by his political advisers,
President Bush set aside his free-trade principles last
year and imposed heavy tariffs on imported steel to help
out struggling mills in Pennsylvania and West Virginia, two
states crucial for his reelection.
Eighteen months later, key administration officials have
concluded that Bush's order has turned into a debacle. Some
economists say the tariffs may have cost more jobs than
they saved, by driving up costs for automakers and other
steel users. Politically, the strategy failed to produce
union endorsements and appears to have hurt Bush with
workers in Michigan and Tennessee -- also states at the
heart of his 2004 strategy.
"They tried to play politics, and it looked like it was
working for a while," said Bruce Bartlett, a conservative
economist with ties to the administration. "But now it's
fallen apart."
The issue is being brought to a boil by the scheduled
release today of voluminous progress reports by the U.S.
International Trade Commission. The ITC's mid-session
assessment of the three-year tariff program's impact will
examine not only the tariffs' effects on the steel industry
but also on the hard-pressed manufacturers that shape steel
into products.
White House officials said Bush will not make a decision
until he has digested the ITC reports. But his top economic
advisers have united to recommend that the tariffs be
lifted or substantially rolled back this fall, and several
administration officials said it is likely he will go
along. The retreat would roil the political and economic
landscape of the Rust Belt, where both parties expect the
presidential election to be won and lost.
It also could produce a tidal wave of negative publicity in
West Virginia, a traditionally Democratic state that Bush
won by 6 percentage points, and Pennsylvania, which Bush
lost by 5 percentage points and had targeted as one of his
most promising possible pickups for 2004.
"The only reason they won't do it is if they're unwilling
to admit they made a mistake," said a Republican strategist
who works closely with the White House.
Administration officials said the office of Bush's top
political adviser, Karl Rove, was a vocal and energetic
advocate of tariffs during the debate last winter. Rove
became so identified with the duties that a Wall Street
Journal editorial calling for their repeal was headlined,
"Steel Thyself, Karl Rove."
Republican lawmakers from steel states said Bush is
considering compromises that would increase the number of
exclusions from the tariffs, easing prices for steel
buyers.
Administration officials are careful to say they see both
sides of the argument. "A healthy steel industry is
important to this country," said Grant Aldonas,
undersecretary of commerce for international trade, in an
interview. "But the small- and medium-sized guys who bend
metal for a living have a real complaint about the steel
tariffs. There's no doubt about that. We can't hide from
it."
Even as they express their sympathies, however, they make
no apologies for the tariffs -- or trade "safeguards," as
the administration prefers to call them. "It's important to
recognize these safeguards have had an adverse impact on
[steel] consumers -- that's why safeguards are used
sparingly," a senior U.S. trade official said. "But the
president thought that on balance the benefits would
outweigh the costs, and the story of the last 18 months has
borne that out."
That conclusion is subject to fierce debate. A study backed
by steel-using companies concluded that by the end of last
year, higher steel prices had cost the country about
200,000 manufacturing jobs, many of which went to China.
Small machine-tool and metal stamping shops say they have
been decimated by steel costs that rose in some cases by as
much as 30 percent.
Steel producers have their own job numbers. Investments
that flooded into the protected steel industry over the
past 18 months brought idled steel mills back on line and
kept teetering mills from shutting down, said Peter Morici,
a University of Maryland business professor hired by the
steel producers. That resurrected 16,000 steel jobs, and
more than 30,000 jobs when steel suppliers are included.
Gary Hufbauer, a critic of the tariffs at the Institute for
International Economics, said that both sides are
exaggerating their numbers. The steel industry has added
some jobs in the past 18 months, but not because of the
steel tariffs. Steel consumers have shed jobs because of
the tariffs, but he said the number was probably 15,000 to
20,000.
But in this case, the facts may be less important than the
perception in key states where the tariffs have been
debilitating. The tariffs failed to give Bush the
allegiance of the United Steelworkers of America, the
industry's largest union and one the White House had hoped
to win over. In August, the union endorsed Rep. Richard A.
Gephardt (Mo.) for president and issued a statement saying
any of the Democratic candidates would offer better than
"the reactionary policies of the current administration."
Perhaps worse for Bush, the tariffs alienated thousands of
small businessmen who run steel-consuming companies. "He
didn't win the steelworkers over, and he sure as hell
didn't win the users over, and there are a hell of lot more
of us," said Jim Zawacki, chief executive of G.R. Spring &
Stamping, Inc., a small manufacturer in Grand Rapids, Mich.
"A lot of people feel burned," said Mike Lynch, vice
president of government affairs at Illinois Tool Works, a
large machine tool company outside Chicago.
Political divisions over the tariffs remain fierce, even
within the GOP. Sen. Arlen Specter (Pa.), who talked to
Bush about the issue this week, contends the tariffs "are
saving thousand of jobs in the steel industry, and you had
a steel industry headed for more bankruptcies."
Sen. Lamar Alexander (Tenn.), however, insists the tariffs
have "shifted more steel-consuming jobs overseas than exist
in the steel-producing industry in the United States,"
causing thousands of layoffs and closing the doors of
hundreds of small businesses that supply automakers in
Tennessee, a state that Bush won by just 4 percentage
points and is counting on for his reelection.
But among Bush's economic team, opposition to the tariffs
has hardened substantially. Administration officials said
Commerce Secretary Donald L. Evans, one of Bush's closest
friends, thinks the tariffs should be lifted as a way of
showing that the administration has heard the pain of
manufacturers, who account for 2.5 million of the more than
2.7 million jobs lost during Bush's presidency. Treasury
Secretary John W. Snow, chief economic adviser Stephen
Friedman and N. Gregory Mankiw, chairman of the White House
Council of Economic Advisers, are said to agree.
That marks a significant change from 18 months ago, when R.
Glenn Hubbard, then chairman of Bush's Council of Economic
Advisers, drafted detailed analyses against the tariffs,
including state-by-state job losses that he forecast for
manufacturing.
But the economic team was fractured. Evans was torn between
the steel industries and the steel users. He ultimately
decided against the tariffs, but with caveats that the
White House political team took as a sign of weakness,
former administration economic officials say. Likewise,
then-Treasury Secretary Paul H. O'Neill expressed
philosophical opposition to tariffs, but he was more
interested in opening talks with allies on limiting steel
production capacity abroad.
At a crucial meeting of the economic team, tariff opponents
said they were abandoned. O'Neill sent his undersecretary
for international affairs, John Taylor. Then-Budget
Director Mitchell E. Daniels Jr. told Hubbard, who also has
since left the administration, that he would back him, but
left the meeting before Hubbard's presentation. And
Lawrence Lindsey, the famously opinionated chairman of the
White House National Economic Council, decided his role was
to facilitate the discussion, not express an opinion.
Perhaps most importantly, former Bush economic advisers
said, Robert B. Zoellick, the U.S. trade representative,
supported the tariffs, figuring that backing them would win
congressional votes to give Bush "fast track" trade
negotiation powers. Indeed, Congress did hand the president
that win. Zoellick also calculated that the lucrative
subsidies backed by Bush that year in the massive farm bill
would help the cause of free trade, by giving the United
States a chip to bargain with at the World Trade
Organization's upcoming round of talks to eliminate farm
subsidies.
But, trade experts say, Zoellick's calculations have had
mixed results. "Fast track" trade powers have allowed Bush
to conclude free trade agreements with Chile and Singapore,
but those have yet to show results in terms of jobs. And
last week, WTO trade talks in Mexico fell apart after poor
countries concluded the United States and other Western
nations were not serious about cutting farm subsidies.
The strategizing was "too clever by half," Bartlett, the
economist, said. "It presupposed that nobody was watching
what we were doing, and it presupposed that our credibility
was of no importance."
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