The American Spectator

Political Hay

Is George W. the half-way president? First it was stem cells: We can do research on some of them, but not on all of them. Then it was education: We can have a bill, but not a good bill. Now Bush is trying another stupid politician trick and aiming to meet the steel industry half-way with a tariff package that might as well be the bastard child of Pat Buchanan and Bill Clinton.

What Bush has done is agree to impose tariffs of up to 30 percent on imported steel, protecting inefficient domestic steel producers from global competition. The "compromise" is that he has refused to go as high as 40 percent -- the steel industry's birthday wish -- and has refused to bail out the under-funded health and pension plans of failed steel companies.

For anyone outside of the U.S. steel industry, this isn't much of a deal. The U.S. steel industry, it turns out, should largely not exist -- and thus no one has much interest in seeing it saved. Sure, it churns out lots of steel, but American companies could import most of the steel they use for cheaper than domestic companies are selling. This means that scores of American steel manufacturers should, in economics terms, kick the proverbial imported steel bucket.

But they don't want to. And since they've got their West Virginian and Pennsylvanian fingers on the electoral button, Bush isn't likely to inform them for whom the bell tolls.

After all, the president didn't become the half-way president for nothing; he got off to something of a compromising start when the nation flipped a judicial coin to decide the one-for-you one-for-me election. The 2000 electoral map practically dictates that Bush cave on the steel issue despite his natural free trade instincts. Bush won traditionally Democratic, and steel-producing, West Virginia (and thus the election) by a Flockhartesque 40,000 votes. And while he lost Pennsylvania by a by-comparison Michael Moore-like 200,000 vote margin, he certainly hopes to flip that state next time around.

And thus America has ended up stuck with 8 to 30 percent tariffs on imported steel from a host of countries (Mexico and Canada are exempted because of NAFTA). The range of tariff rates serves to nicely illustrate the fact that the considerations here were exclusively political as opposed to economic (after all, if the steel industry is so vital and in such bad shape, why not keep tariffs high across the board). Tin mill steel, for example, which is of primary importance to West Virginia, got a cushy 30 percent tariff. Steel flanges, on the other hand, which auto manufacturers use quite a bit, went home with a 13 percent tariff. You've got to balance those special interests.

The people who get hurt, of course, are American consumers and American companies that depend on steel. Economists predict the tariffs could raise domestic prices by 6 to 8 percent in the first year -- a sort of Bush Tax on consumer goods like cars and washing machines.

So how do deals like this get made, where consumers suffer for the good of a tiny, but politically favored, industry? The problem is fairly simple: Democracy doesn't work. While a concentrated interest like the steel industry can easily organize around an issue like higher tariffs (where they have much to gain), consumers (who have far less to lose or gain individually) hardly have any incentive at all to organize. While far more people will get stiffed by higher prices than will benefit from the protectionism, consumers care far less -- and most don't even know they're being taken for a ride.

It wasn't supposed to be this way. In theory, special interests aren't inherently bad -- in fact, James Madison hoped they would act like Republican primary candidates and fight until they canceled each other out -- but they are rotten to have around when the government they are lobbying has too much power. When the government can shut special interests up by giving out candy from a nationwide grab bag at almost no political cost, the special interests are destined to go home fat and happy. Just look at the agricultural industry, the auto industry, the pharmaceutical industry, the energy industry, the… never mind, don't strain your eyes.

Unfortunately that government candy will also rot the special interests' teeth. The more subsidized and distorted an industry is by government largesse, the worse off it will be in the long run. Steel is a perfect example. Over the last 25 years, the steel industry has sucked down more than $17 billion in government subsidies. This year alone, the United Steelworkers of America lobbied for another $10 billion. When firms that should go out of business don't go out of business they become even more superfluous and even more of a drag on the economy. That's why steel pensioners in America outnumber steelworkers 5 to 1.

Bush claims that the tariffs, scheduled to expire in three years (coincidentally after the 2002 and 2004 elections), are meant to ease the steel industry off the government dole. We've heard that one before. In the meantime, Bush better hope that his steel gambit doesn't hurt the current economic recovery, or significantly weaken his hand in liberalizing trade in other areas. Either outcome could end up outweighing any gains he believes he has made in the Rust Belt -- and he could end up the four-year president.

topics:
Education, Trade, Bill Clinton, Economics, Business, Energy