Steel tariffs backfire on Bush

President Bush at a steel plant in Pittsburgh, Pa., in August 2001:
Bush set aside his free-trade principles last year and imposed heavy
tariffs on imported steel. The tariffs failed to give Bush the
allegiance of the industry's largest union.

Steel tariffs backfire on Bush

Move to aid mills, gain votes called economic debacle

By Mike Allen and Jonathan Weisman
THE WASHINGTON POST

http://www.msnbc.com/news/968866.asp

Sept. 19 — 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 awhile," 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 recomend 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.

‘STEEL THYSELF, KARL ROVE'




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."

INTENSE DEBATE
The tariffs failed to give Bush the allegiance of the United
Steelworkers of America, the industry's largest union. In August, the
union endorsed Rep. Richard A. Gephardt for president.

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."

‘PEOPLE FEEL BURNED'
‘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.'
— JIM ZAWACKI
small businessman 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.

A SHIFT OVER 18 MONTHS
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.

‘TOO CLEVER BY HALF'
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."

© 2003 The Washington Post Company