When Technology Collides With Trade Policy

Washington: President Bush's recent order of a protective tariff against some steel products imported from some of our trade competitors provoked cries that a new Smoot-Hawley tariff was about to set the world aflame.

That may not be the case. Free traders are right to be wary of a temptation on the part of politicians to throw up tariffs or other barriers on behalf of some sacred industry or occupation. But in the real world of steel trade every other government is subsidizing its steel industry through a combination of outright grants and under the table subsidies.

The U.S. steel tariffs represent a far different story than the common cry that vocal free trader Bush has shamelessly caved in to selfish unions and steel barons. It could well be the president is signaling our trade partners the time has come to level the steel playing field.

If you want a comparison try this one: One of President Bush's first acts on taking office last year was to declare that America would not be a party to the Kyoto Protocol on global environmental standards. He was denounced at once as signaling a new round of pollution that would swamp the world. The truth that no one would acknowledge publicly was that the Kyoto standards were a bad joke. No European government ever installed them and most developing economies had their worst polluting industries exempt from the rules.

A year later, more soundly based environment talks are going on at staff levels, quietly and without the pressures of various interest groups. The hot-button Kyoto accord is forgotten. The world hasn't choked and improvements are brokered the way they should be-sensibly and globally. As for the steel tariffs, it's equally important to look at what they do and don't mean:

First, the 30 percent tariff isn't exactly that. In the first year of the three-year tariff program the duty will be imposed on slab, flat, tin mill and bar steel products. Other kinds of steel imports like rebar, welded tubes, stainless bars and rods, and carbon alloy fittings will be taxed at rates of fifteen to eight percent.

Second, in the following two years of the tariffs those rates drop to a range of twenty-four to seven percent, and finally to a range of eighteen to six percent levies. In the year 2005 the tariffs end.

Third, not all nations are being penalized for subsidizing steel sales to us. Canada and Mexico, who sell one quarter of the steel we buy, are exempt. Roughly 80 other developing nations are also not on the tariff list.

Finally, the big losers are the countries that sell steel to us at subsidized and unfairly low prices.

In that light, the Bush tariffs on steel look a lot like his dumping of the Kyoto accords, his withdrawal from the Anti-Ballistic Missile Treaty with Russia and other actions that have upset our global neighbors for being too "unilateral."

Another point worth considering is the impact the tariffs will have on our domestic steel industry.

The tariffs, the Bush trade team insist, provide breathing space. The old, coal-fired blast furnaces are going anyway because they can't compete with the new mini-mills and their technological superiority. A mini-mill can produce hot-rolled steel at $315 a ton against $350 a ton from an old blast furnace. But this improvement has come at a price. This is where technology meets trade policy head-on.

The technological transformation of the American steel industry is perilous. More than two dozen of the old integrated concerns of have gone bankrupt since 1998. On a related front, the tariffs serve as a carrot-and-stick for the steel companies to come to grips with the huge under funded health and pension benefits owed to their largely retired workforce.

What the president has done, in effect, is set a clock ticking on foreign steel competitors and our own domestic industry. The time to shape up is now. We shall see if Bush unilateralism works in trade as well as it has against terrorism.

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