The Logic of Bush's Twisty Steel Policy

Conventional wisdom says the President's now-abandoned steel tariffs were a failure. Look closer, and they sparked a string of quiet coups

By Paul Magnusson

President Bush weathered a storm of criticism when he imposed three years of 8% to 30% tariffs on imported steel in March, 2002, as fellow conservatives roundly questioned his professed free-trade credentials. When the President suddenly lifted the tariffs Dec. 4, just halfway through their expected three-year run, he began hearing from liberal critics questioning his professed free-trade credentials. Politically, it seems, the peek-a-boo tariffs were an utter failure, disappointing Bush's political allies and enemies equally.

That's how it looks, but maybe it's not exactly true. Sure, the President was castigated on every editorial page in the nation when he first levied the tariffs, but he also got something back politically, economically, and internationally. Consider:

• Even steel executives acknowledge that the temporary tariffs helped the industry get back on its feet. Thomas Usher, chairman and CEO of United States Steel (SXX ), says the tariffs stabilized prices, allowed the U.S. industry to consolidate, stopped the flood of bankruptcies and layoffs, and encouraged a wave of productivity-enhancing investment.

More than half of steel-production capacity today is owned by companies that have merged or restructured, Bush Administration figures show. Usher's company can now produce a ton of steel with just two man-hours, down from two-and-a-half before the tariffs were imposed, he says. And the company's stock, at $27.65 as of Dec. 4, is within spitting distance of its 52-week high.

• Europeans might not view Bush as being such a go-it-alone cowboy after his decision to renege on the tariffs. The President's decision complies with several World Trade Organization rulings that the tariffs violated international trade laws. Rather than defy the 148-member trade body, Bush conformed, something the Europeans themselves have been unwilling to do on a decade-old WTO ruling involving U.S. beef exports. Also, Bush helps his stalwart European ally, British Prime Minister Tony Blair, who sought the action during Bush's recent trip to Britain.

• The tariffs pushed the world's 20 major steelmaking nations to the negotiating table at the Organization for Economic Cooperation & Development in Paris. The idea was to reduce world overcapacity in the international steel industry. Not much has yet come of the steel talks other than an implicit admission by steelmaking nations: There's no free market in steel because most nations -- other than the U.S. -- either massively subsidize or own outright their nation's steel plants, totally distorting the market. Governments all over the world created the problem. Now, they'll have to solve it.

• By agreeing to aid the U.S. industry, the Bush Administration purchased enough votes among House Republicans from steel-producing states to pass so-called fast-track trade-negotiating authority in 2001, one of its top economic priorities. The measure passed by only one vote in the House after the Administration promised to protect the U.S. steel, textile, and clothing industries from unfair foreign competition. Without the promise on steel, the legislation, which allows the White House to seek new free-trade deals, never would have passed.

• Much will be made of the anger expressed by the president of the United Steelworkers Union, Leo Gerard. He insisted on Dec. 4 that Bush's decision was a "cave-in" in the face of "European threats and bullying," referring to the successful case brought by the European Union and backed up by the threat of retaliatory tariffs authorized by the WTO.

President Bush traveled to the Steelworkers' hometown, Pittsburgh, and raised $850,000 in political contributions at a fund-raiser co-hosted by U.S. Steel's Usher just days before he lifted the tariffs. In fact, the Administration even asked the Europeans and the WTO for five extra days to make its steel-tariff decision in order to hold the fund-raiser first. An incredulous Gerard called the delay "an extremely cynical, opportunistic approach to fund-raising." But Bush could take some satisfaction on his way to the bank knowing that the Steelworkers union has already endorsed Democratic Presidential candidate Richard Gephardt.

These on-again, off-again tariffs won't be one of the more popular actions of the Bush Administration. But if the U.S. steel industry keeps improving, Bush may be remembered as its patron saint -- just as President Ronald Reagan is now known as the man who rescued Harley-Davidson (HDI ) by applying temporary tariffs to rival Japanese motorcycles in the 1980s. It may not be fair, but that's politics, folks.

Correspondent Magnusson covers trade policy for BusinessWeek

Edited by Beth Belton

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