In March 2002, the Bush White House made perhaps its boldest flip-flop ever. After years of praising free trade orthodoxy, Bush let Karl Rove convince him it would be politically wise to impose heavy new tariffs on imported steel, so as to help Bush’s chances in ’04 in swing states like Ohio, Pennsylvania, and West Virginia.
Even Bush’s closest conservative allies howled. The Heritage Foundation’s Gerald O’Driscoll said, “This is purely a political decision. There is no economic justification for it.” Conservative columnist George Will used the nastiest insult a Republican can use against another Republican, asserting that Bush is “less principled than Bill Clinton.”
And here’s the kicker: the tariffs intended to help steel workers have backfired.
In a tremendous front-page article in today’s Washington Post, Bush administration officials are begrudgingly concluding that the entire ordeal has become a “debacle” for the president. The tariffs have now ended up costing more jobs than they saved.
As Bruce Bartlett, a conservative economist with ties to the administration told the Post, “They tried to play politics, and it looked like it was working for a while. But now it’s fallen apart.”
Oh, what a tangled web we weave…when first we practice to screw the manufacturing sector and our international trade allies.
The Post reported that Bush, just a year and a half after imposing the controversial tariffs, will receive recommendations from his top economic advisors to undo what he did last March. For an administration that loathes admitting mistakes, this would be a huge embarrassment.
The problem was created, in part, by causing difficulties for companies that use steel. While the tariffs singled out steel producers for trade protection, the higher steel prices ended up hurting companies in the manufacturing sector, including the auto industry. One study, backed by steel-using companies, concluded that the higher tariffs cost the U.S. about 200,000 manufacturing jobs, though that number is probably inflated a bit.
Politically, what was supposed to be transparent pandering to steel workers in the Rust Belt hasn’t worked out at all, as Bush ended up alienating almost everyone. “[Bush] 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.
Even some Republicans in Congress are distancing themselves from Bush’s policy. As the Post reported, Sen. Lamar Alexander (R-Tenn.) argues that the steel 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 in 2004.
Aside from the political consequences in the U.S. of Bush putting politics before principle, we also shouldn’t overlook the international effects of Bush’s trade policies. Though the Post article didn’t mention it today, the Bush/Rove steel tariffs also contributed to ill will with many of our traditional allies overseas (an ongoing characteristic of this administration, I might add).
Within two months of Bush’s announcement of protectionist policies on steel, traditional allies in the European Union expressed outrage at Bush’s indifference for the effect the increased tariffs would have on the economy on the other side of the Atlantic.
In an interview published in the Financial Times in April 2002, the EU’s trade commissioner, Pascal Lamy, bitterly condemned Bush’s decision.
“There is no way it cannot be seen in Europe as ‘You can go to hell,'” Lamy said.
Indeed, EU, Japan, China, and others, charged that Bush’s increased steel tariffs were not only damaging, but also illegal under agreed upon standards reached through the World Trade Organization.
I bring this up to point out that when Bush administration critics, like me, point out that American standing as suffered around the world under Bush’s “leadership” (if we can reasonably call it that), it’s not just about unilateral war in Iraq. It also includes, among other things, Bush’s nose-thumbing economic policies.
So to review, Bush’s transparently political tariffs ignored his own professed love for free trade policies, angered some of our closest international allies, cost thousands of jobs in the U.S. manufacturing sector, and made him less popular in the states he needs to win over for a second term.
Boy, that Karl Rove sure is smart.