Jewish World Review March 12, 2002 / 28 Adar, 5762

Jack Kelly

Jack Kelly
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Consumer Reports


Making foreign cheaters pay


http://www.NewsAndOpinion.com | One of the few things liberal and conservative pundits have agreed on lately is that President Bush's decision to impose temporary, 30 percent tariffs on most steel imports was a spineless flip-flop, made for crass political reasons, that will hurt the economy.

"Just a few days ago, some supporters of George W. Bush hoped that he would show his mettle by standing up to steel industry demands for tariff protection," wrote New York Times columnist Paul Krugman. "Instead he capitulated, with a cravenness that surprised even his critics."

"Proving himself less principled than Bill Clinton regarding the free trade principles that are indispensable to world prosperity and comity, President Bush has done what President Clinton refused to do," wrote columnist George Will.

"President Bush...buckled under pressure from the steel industry, placing political calculations above the overall well-being of the economy," said the Washington Times.

I am one of a tiny minority of conservatives who think President Bush did the right thing. The U.S. steel industry is in serious trouble. Nearly 30 percent of U.S. steel companies have filed for bankruptcy protection since steel imports surged in 1998. Some 60,000 U.S. steelworkers have lost their jobs. More bankruptcies and more layoffs will follow if the flood of imports isn't reduced.

Part of American steel's problems are the fault of steel companies and steelworker unions. Many U.S. mills are antiquated. Management has made some mistakes. And the pay and benefit packages for steelworkers have been very, very generous.

But most of the problem is not the fault of management, or of steelworkers. There is a worldwide glut of steel production. Foreign steel producers, chiefly in Russia, Japan and Brazil, have been selling steel in the United States for well below the cost of manufacturing it. They are able to do this because their governments subsidize those industries, in order prevent a loss of jobs in Russia, Japan and Brazil.

The damage is compounded by the unusually high value of the dollar relative to other currencies, which makes foreign goods seem cheaper.

Because our government heretofore has not taken action to protect American steel mills from predatory pricing, it's been American workers who've been losing their jobs.

The selling at a loss by foreign producers has been a boon to American consumers of steel - those companies that use steel to manufacture products, and those of us who buy products made of steel. Steel prices are the lowest they have been in many years.

Opponents of the tariffs say they amount to a new tax of roughly $1 billion annually, to be imposed chiefly upon the buyers of cars and trucks.

The leaders of the nations which will have the tariffs imposed upon them have complained bitterly. "Such blatant protectionism," said the New York Times in an editorial, "could plunge the world into a bruising trade war."

There is no question that consumers derive a temporary benefit from predatory pricing. But the important thing to remember about this benefit is that it is temporary. The great trusts of the 19th Century were built chiefly by predatory pricing. A Standard Oil, say, deliberately would sell its products at below cost to drive competitors with shallower pockets out of business. But once a monopoly had been established, the consumers got gouged.

The monopolies created by predatory pricing in the 19th Century were American. We were able to bust the trusts. But if we permit the U.S. steel industry to be destroyed, how will we protect ourselves in the future from exploitation by foreign trusts?

The question isn't just one of fairness to American workers, or of concern for our pocketbooks in years to come. Steel is a vital commodity in our basic industries, especially in our defense industries. If we permit our domestic steel industry to be destroyed by unfair foreign competition, we will be at the mercy of those who produce the steel we buy, or who could impede its shipment to the United States.

Global free trade is basically a good idea, though it has proven to be a better idea in theory than it has in practice. But global free trade works only when everybody plays fair. If other countries cheat, it's up to the president to level the playing field.

He has.



Comment on JWR contributor Jack Kelly's column by clicking here.

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© 2002, Jack Kelly