Acton Commentary

Trouncing Tariffs


For believers in the benefits of free trade, some hopeful news emerged early this week. The Bush administration, it appears, will be revising its policy on steel tariffs enacted two years ago.

Advocates of trade viewed the original placement of tariffs with dismay, seeing it, accurately, as a violation of Bush’s fundamentally pro-trade stance in an effort to shore up popular support in key states such as Ohio, Pennsylvania, and West Virginia. Now Bush is poised to reverse himself.

The cause of the reversal is not necessarily a recalculation of the political effects. The steel tariffs flouted World Trade Organization rules from the beginning, and that trade body officially reaffirmed its ruling last month, opening the way for retaliations by trading partners such as the European Union, Norway, and Japan. News reports cite Bush administration officials as confirming that it was the threat of sanctions from the EU that spurred the president to reconsider the levies on foreign steel.

Politically, the president has a problem. Bush lost Pennsylvania in the 2000 election, and, though he won Ohio and West Virginia, both are thought to be up for grabs in 2004. On the other hand, steel-consuming industries, such as Detroit’s automakers, are hurt by the higher prices generated by steel tariffs. Bush lost Michigan in 2000, but he would like to collect its 18 electoral votes in 2004.

The calculations may or may not be accurate. Big steel and big steel unions, the forces behind the push for tariffs, are declining forces in the American economic and electoral landscape. As a Bush-Cheney ’04 campaign official put it in a Fox News story, “There are more people in Pennsylvania these days employed at Wal-Mart than in the steel industry.” Workers in steel-consuming industries outnumber those in steel production 57 to 1.

Political calculations aside, there is little doubt as to the economically and morally superior course. Trade barriers, sometimes defended as a means to social justice for domestic workers, in fact run against justice. Tariffs inevitably favor one group of people over another, in this case steel producers over steel consumers. Such inequality of treatment by government policy is at odds with real justice, which obliges the giving to each his due. If the steel industry is owed protection by the government, then, by extension, government must have an obligation to keep in business any and every ailing company.

Economically, trade barriers stifle rather than promote growth. They enable relatively less efficient firms to outperform more efficient enterprises. They prevent domestic companies and workers from recognizing the need for improvement and from shifting to products and methods of production by which they can genuinely compete with the rest of the world. Higher productivity—creating more goods at less cost—may result in short-term and localized negative effects such as job loss, but it is on balance an advance for the common good.

The economic effect itself has a moral dimension. Vatican officials have vocally opposed protections such as agricultural subsidies and manufacturing tariffs because of their negative effects on the ability of developing economies to participate in the world market.

The steel industry has understandably objected that government subsidies for steel in places such as China allow foreign companies to sell their product at an artificially low price. This “dumping” of steel on the world market unfairly undercuts American firms. The administration should continue efforts to stem this problem, insisting that all companies compete on a level playing field. But protective measures at home escalate trade wars rather than diminish them. Antidumping regulations, moreover, must be carefully crafted and implemented so as not to become protectionist policies themselves, which has happened in the past (as shown by this Cato Institute study ).

Competition can be painful. It is possible that steel, still an important industry, might continue to decline, entailing job losses and harm to some communities. There is a vital role for a variety of institutions, including churches, unions, and job training centers, to play in minimizing such pain and helping workers to become self-sufficient again.

The political ramifications of the president’s policy on steel tariffs, unclear as they are, should not be the primary concern. Justice and the common good demand that special privileges be ended and that the potential of economic freedom be tapped.