Jewish World Review Feb. 27, 2002 / 15 Adar, 5762

Jack Kemp

Jack Kemp
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Chris Matthews
Michael Medved
MUGGER
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports

American trade policy at war with itself

http://www.NewsAndOpinion.com -- IN his State of the Union Address last month, President George W. Bush sounded like Adam Smith when he said, "Good jobs depend on expanding trade." Yet sooner or later, the president is expected to announce what can only be called a "mercantilist" idea to enact higher tariffs (perhaps as high as 40 percent) and more quota restrictions on imported steel. From Adam Smith to industrial mercantilism in less than 60 days. Wow!

As the administration ponders what it's going to do, it would be well advised to remember Smith's observation that "Consumption is the sole end and purpose of all production, and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer."

Smith understood that when government imposes import quotas and selective tariffs to protect favored producers, the interest of consumers is doubly sacrificed. Consumers must pay both a higher price for imports due to the tariff and a higher price for domestic products.

The administration got itself into this fix last June, when Bush directed the U.S. trade representative to request the International Trade Commission to initiate an investigation into the "injury" done to the U.S. steel industry by foreign producers' allegedly "dumping" steel on American markets at "below-market" prices. The president justified his order on the grounds that the declining fortunes of big, old-fashioned, integrated steel producers raise considerations of "national security." Here, too, it is helpful to recall Smith on producers who make the claim that every tariff they seek is a "patriotic duty."

Protectionism is always tempting to political leaders left and right, especially when the special-interest lobby in question comprises both large corporations and labor unions. Little is more frightening to a politician than to be accused of "doing nothing" while cheap foreign imports undermine America's industry, causing American companies to go bankrupt and throwing hard-working Americans out of jobs. Nothing gets the juices flowing faster, especially during a time of war, than to have Big Steel wrap itself in the flag and appeal for import quotas and a tax increase on imports as an act of patriotism.

But as every new generation of politicians learns the hard way, if they succumb to the siren song of protectionism, it is a counterproductive political stratagem because it is economically harmful. Protectionism shrinks national output more than it increases business in the protected industry; it costs more American jobs in related industries than it saves in the protected industry. Therefore, protectionism ultimately loses more votes than it garners because it adversely affects so many more people than it benefits.

According to a study published by the Institute for International Economics, the highest of the tariffs and quotas under consideration by the administration would cost domestic steel users and foreign steel companies $34 billion over four years, which translates into a cost of $500,000 for every steelworker's job that might be saved. But that's not the extent of the economic damage that steel quotas and protectionist tax increases would cause.

The higher price of steel would reduce demand for products made of steel, such as automobiles, machinery and appliances, and lead to layoffs. By one estimate, as many as 13 jobs would be lost in companies manufacturing and selling steel products for every steelworker's job saved by import quotas and higher taxes on steel.

Yes, many American steel companies cannot currently compete in global markets, and steelworkers' jobs are at risk. However, the real problem is not competition with Europe and Japan but wrongheaded policy. The real enemy of steelworkers in the United States is not foreign companies but stupid tax and regulatory policies in Washington.

If we would reform the tax code to expense investment in plants, machinery and technology, cut tax rates on labor and capital to increase workers' disposable after-tax income, and ease up on radical environmental regulations, all American businesses would have a better chance to compete with foreign rivals who enjoy a friendlier tax and regulatory environment and face lower labor costs. Tax and regulatory reform would allow workers to live better lives with more income after taxes.

Beyond the immediate economic harm produced by increasing steel quotas and raising steel-import taxes, Bush must also consider the retaliation it would invite from our trading partners and how abandoning his free-trade position would seriously undermine his credibility when it comes to convincing Congress to grant him trade promotion authority (formerly known as "fast-track" authority). When the president announces his decision, I hope he rejects the special pleading of the steel lobby and stands up for free trade and by doing so stands up for all Americans.


Jack Kemp is co-director of Empower America and Distinguished Fellow of the Competitive Enterprise Institute. Comment by clicking here.



Up

02/20/02: Three-conjecture strategy on global warming
02/14/02: Nurturing democratic capitalism in Afghanistan
02/06/02: Gephardt embraces tax cuts and tax simplification
01/30/02: Just the facts
01/22/02: 'Been down so long it looks like up to me'
01/15/02: Confronting terror wherever it occurs
01/09/02: Daschle's war on Bush
01/03/02: Prosperity policies, not partisan politics
12/27/01: Governments create calamity, markets get the blame
12/18/01: 'Tis the season for Daschle to compromise
12/12/01: Hard choices made simple
12/05/01: Straight talk on Iraq
11/28/01: Not all tax cuts are created equal
11/20/01: Words have consequences
11/15/01: Deflationary recession
11/07/01: Consider Mideast reality in the war on terrorism
10/30/01: No 'stimulus' required
10/23/01: Good out of evil
10/16/01: Watching Iraq
10/12/01: The putrid stench of evil
10/04/01: Trade, terror and truth
10/01/01: Drive this scourge from the face of the Earth
09/25/01: Bush emerges as leader for his time
09/06/01: Middle East Madness has a chief instigator
08/30/01: It's about economic growth, stupid!
08/22/01: Phlebotomizers at the IMF
08/17/01: The Greenspan Recession
08/08/01: From Kyoto to Bonn, no science equals nonsense
07/25/01: Fiddling while the world economy freezes
07/19/01: Schundler should be New Jersey's next governor
07/12/01: Second wind for the global economy
07/06/01: An interest-rate target with no bull's-eye
06/28/01: Tax harmonization --- American-style
06/21/01: Warming diplomacy --- at what price?
06/13/01: A party that stands for nothing deserves to lose
06/07/01: No peace in the Middle East
05/30/01: Jeffords' palace coup
05/24/01: A supply-side energy plan
05/16/01: Getting Lincoln right
05/10/01: A good reason to borrow
05/01/01: Supreme Court makes racial profiling the law of the land
04/26/01: Campaign finance reform: silencing the lambs
04/17/01: Right wanted might in China case
04/12/01: How minority entrepreneurs can save the tax cut
04/04/01: Whose privacy is it?
03/29/01: A letter from Seoul
03/20/01: Ignore the double talk and double the tax cuts
03/13/01: Don't give up the bully pulpit on Social Security, Mr. President
03/06/01: Another attack on the economy
02/28/01: It's time to end deflation
02/21/01: Building blocks of humanity
02/15/01: Trumping the propaganda
02/06/01: The Gipper at 90
01/30/01: Kicking off a season of economic growth
01/24/01: The Bush tax agenda
01/17/01: Debating the Clinton legacy
01/10/01: No need for another Social Security commission
01/03/01: Truly a Golden Age, if we can keep it
12/27/00: The Grinch who turned off the holiday lights
12/20/00: Forging ahead
12/13/00: A new tax system for the 21st Century
12/07/00: Global government in retreat
11/30/00: An open letter to Fed Chairman Alan Greenspan
11/21/00: Don't forget the guy in charge
11/15/00: Civic virtue, civic vice
11/08/00: Memo to the president-elect
10/31/00: Scare tactics won't work
10/24/00: Prosperity in the balance
10/11/00: Al Gore's economics of fear
10/03/00: Al Gore IS debatable
09/27/00: Government should protect our online privacy
09/13/00: The most important issue
09/05/00: Defeating the Gore blitz
08/29/00: Workers of the world, rejoice
08/22/00: Just the facts, Mr. President
08/08/00: Reclaiming Lincoln's legacy
06/23/00: A renaissance for urban America?
06/16/00: Capital access can bridge 'digital divide'
06/08/00: Some friendly advice for Rick Lazio
05/26/00: Is the economy being saved or destroyed?
05/22/00: Immigration and the promise that is America
05/12/00: Stock market roulette or snobbery?
05/04/00: Is Rule of Law whatever we say it is?
05/01/00: Myths happen

© 2002, Copley News Service