When George W. Bush Imposed Tariffs on Steel

When George W. Bush Imposed Tariffs on Steel March 10, 2018

William Hauk, an Associate Professor of Economics at the University of South Carolina, has an article that looks at what happened when George W. Bush imposed similar tariffs on steel to what Trump is doing back in 2002. First, the WTO declared it a violation of our treaty agreements, which it is. But the economic impact was significant.

As he notes, tariffs are really a means of transferring money from consumers to producers by rigging the market to create higher prices. And in most markets, the consumers are dispersed enough, and the cost low enough for each person, that it’s difficult to get a strong opposition to coalesce against the tariffs. But with steel, the intermediate consumers are other producers with big money — automakers, real estate developers and construction equipment manufacturers — and they can often mount a successful lobbying campaign to prevent it, or at least put up a good political fight over it. So what happens economically when such tariffs are imposed?

In 2002, it was pushback from these industries that helped persuade the National Association of Manufacturers to come out against the tariffs. Eventually the World Trade Organization ruled the policy illegal because it violated U.S. trade commitments, which led to the threat of a trade war with the European Union.

The Bush administration withdrew the tariffs in December 2003, about 21 months after they were imposed, but not without a cost. As noted above, the Consuming Industries Trade Action Coalition found that 200,000 workers in U.S. manufacturing lost their jobs as a result of the tariffs. For comparison, the entire U.S. steel industry employed 197,000 at the time.

This is precisely the kind of “government picking winners and losers” that Republicans continually claim to be against (but aren’t in practice, of course). And it’s exactly the kind of regulation that does the opposite of what good regulation should do. Good regulation should maximize competition and benefit consumers, not restrict competition and protect market share by big corporations. Competition means greater efficiencies and lower prices; protecting market share means more monopolies, less innovation and higher prices — but higher profits for those with enough influence to push through the regulation that rigs things in their favor.

So why is Trump doing this? I don’t think it has much of anything to do with being bought off by steel producers because other moneyed interests could then buy him off just as easily. I think a couple things are at play here. First, he almost always thinks the simplest solution is the right one, primarily because he just doesn’t have the mental discipline to think deeply about public policy or its ramifications. Second, because this fits naturally with his innate nativism and xenophobia, and his desire to make foreigners the scapegoats for our problems. He’s just being a classic demagogue.

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