The Conversation
Edition:
Available editions
Africa
Job Board
Become an author
Sign up as a reader
Sign in
The Conversation
Academic rigour, journalistic flair
Arts + Culture
Business + Economy
Education
Environment + Energy
Health + Medicine
Politics + Society
Science + Technology
In French
George W. Bush tried steel tariffs. It didn’t work
March 8, 2018 11.17pm SAST
Bush, seen here in 2006, revoked his steel tariffs less than two years after imposing them in 2002. Reuters/Jason Reed
Author
William Hauk
Associate Professor of Economics, University of South Carolina
Disclosure statement
William Hauk has previously received funding from the Center for International Business Education and Research, which receives funding from the U.S. Department of Education
Partners
University of South Carolina
University of South Carolina provides funding as a member of The Conversation US.
The Conversation is funded by Barclays Africa and seven universities, including the Cape Peninsula University of Technology, Rhodes University and the Universities of Cape Town, Johannesburg, Kwa-Zulu Natal, Pretoria, and South Africa. It is hosted by the Universities of the Witwatersrand and Western Cape, the African Population and Health Research Centre and the Nigerian Academy of Science. The Bill & Melinda Gates Foundation is a Strategic Partner. more
Republish this article
Republish
Republish our articles for free, online or in print, under Creative Commons licence.
Email
Twitter65
Facebook437
LinkedIn
Print
President Donald Trump finally followed through on his almost year-old threat to restrict imports of foreign steel.
On March 8, the president slapped a 25 percent tariff on the metal, while also putting a 10 percent duty on foreign aluminum. After initially suggesting there’d be no exceptions, Trump promised to be “very flexible” and initially exempted Mexico and Canada from the duties, which are set to go into effect in 15 days.
While Trump cited “national security” as the impetus, he’s been vowing since the campaign to use trade policy to restore jobs to the American manufacturing sector, which has suffered in recent decades. The steel sector, for example, supported as many as 650,000 American workers in the 1950s, yet now employs only about 140,000.
My research focuses on the politics of trade and what prompts political leaders to impose restrictions like tariffs. The last time a president slapped tariffs on steel offers an illuminating lesson – and cautionary tale – for Trump’s new policy.
President Trump holds up a proclamation on steel imports on March 8. AP Photo/Susan Walsh
The Bush steel tariffs
In early 2002, then-President George W. Bush imposed steel tariffs of up to 30 percent on imports of steel in an effort to shore up domestic producers against low-cost imports.
These tariffs were controversial both at home and abroad because, even as they helped steelmakers, they squeezed steel users, such as the auto industry.
They were also seen as hypocritical at a time when the Republican administration was trying to encourage other countries to liberalize trade policies – and reduce their tariffs – through the Doha Round of World Trade Organization talks that were happening at the time.
Transfer of wealth
So what happens when a country imposes tariffs?
The general economic view of trade protection says that tariffs transfer money from a good’s consumers to its producers.
Let’s say a country slaps a 20 percent tariff on imports of beef. The country’s beef producers will be much better off because now imported meat is as much as 20 percent more expensive, meaning domestic companies will be able to sell more rib-eyes and raise their prices. That’s bad news for restaurants and fans of steaks and hamburgers, who will pay those higher prices.
This transfer is usually economically inefficient because the benefits that domestic producers receive from a tariff will generally be less than the costs to domestic consumers.
Former President George W. Bush tours a steel factory in 2001, shortly before he imposed tariffs on foreign-made steel. Reuters/Rick Wilking
One of the reasons they still happen despite this inefficiency is that consumers are typically a very large and dispersed group. While they collectively may lose a great deal of money in higher costs from a tariff, the cost to any one individual may not be that great. Therefore, consumers are often less motivated in opposing trade protection than a relatively narrower and more unified group of producers who have a lot to gain.
The special case of steel
Steel tariffs, however, don’t follow this pattern.
That’s because far from being broadly dispersed, steel consumers are heavily concentrated in the construction and automotive industries – which have very powerful political lobbies of their own. As a result, steel consumers are more likely to balk at the higher prices that would result from tariffs.
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. 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.
During the campaign, Trump knew the value his arguments against foreign steel would have in states like Ohio. Reuters/Jonathan Ernst
The politics of trade
So why is Trump doing this?
As my research shows, there are always competing voices lobbying for and against trade protection, and those preferences alone aren’t enough to push a protective measure into law. That depends on how effective an interest group is in winning the support of powerful political patrons.
The steel industry has had several things working in its favor. Trump has said repeatedly that he wants to protect American manufacturing squeezed by foreign competition, and U.S. steel certainly fits that profile. But more importantly, steel production is concentrated in old industrial states in the Midwest, such as Pennsylvania and Ohio. These states have been swing states in recent presidential elections, which gives industries with workers in those regions outsized influence.
The U.S. sugar industry, which is very heavily protected, benefits in a similar way by being heavily concentrated in Florida, a frequent swing state.
Still, despite steel’s political advantages, tariffs are still a large gamble for Trump. While the impact of steel tariffs on other domestic manufacturers such as construction and automotive manufacturing is likely to be bad, the bigger concern is that they set off a trade war.
That would have negative consequences for American consumers and producers alike, as well as for the U.S. economy.
This article incorporates elements of a story published on July 17, 2017.
US Economy
Steel
Protectionism
George W Bush
Tariffs
Steel industry
Trump administration
Tweet
Share
Get newsletter
You might also like
Trump’s protectionism continues long history of US rejection of free trade
Canada can’t win a trade war with the United States
America’s allies will bear the brunt of Trump’s trade protectionism
‘Trade wars are good’? 3 past conflicts tell a very different story
Sign in to comment
10 Comments
Oldest Newest
Leigh Oats
logged in via Facebook
Let’s stop being so censorious of the present part-time squatter in 1600 Pennsylvania Avenue. He has more sense in his whole brain than the rest of the world has in all their little fingers put together.
3 days ago
Report
Susan Watson
In reply to Leigh Oats
If that was meant as a complement it would have been “He has more sense in his little finger than the rest of the world’s brains put together”. Is that what you meant? Or is this a complex sort of put-down?
3 days ago
Report
Show all comments
Most popular on The Conversation
What ‘blackface’ tells us about China’s patronising attitude towards Africa
Spike in Listeria infections in South Africa: why it matters
Land debate in South Africa is about dignity and equality - not the constitution
South Africa returns to apartheid-era censorship with the “banning” of Inxeba
South Africa’s land debate is clouded by misrepresentation and lack of data
African universities are ignoring a rich, invaluable resource: their alumni
Six challenges that impede entrepreneurs with disabilities in South Africa
Electric vehicles are changing the world. And they’re only just getting started
What’s stopping Zimbabwe’s young people from participating in elections?
Three reasons why Africa should treat Tillerson visit with scepticism
Expert Database
Find experts with knowledge in:*
Want to write?
Write an article and join a growing community of more than 63,900 academics and researchers from 2,278 institutions.
Register now
The Conversation
Community
Community standards
Republishing guidelines
Research and Expert Database
Analytics
Job Board
Our feeds
Company
Who we are
Our charter
Our team
Partners and funders
Contributing institutions
Resource for media
Contact us
Stay informed and subscribe to our free daily newsletter and get the latest analysis and commentary directly in your inbox.
Email address
Follow us on social media
Privacy policy Terms and conditions Corrections
Copyright © 2010–2018, The Conversation Africa, Inc.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment