Free markets or no, U.S. trade woes continue

Wednesday, September 15, 2004
Patriot News

In the 1990s, the United States signed off on two major trade agreements -- NAFTA and WTO. Overcoming significant opposition, most of it directed by fellow Democrats, President Clinton shepherded the agreements through Congress and served notice to the world that the U.S. was committed to the goal of advancing free trade.

With George W. Bush assuming the presidency in 2001, that commitment was not expected to change. After all, Republicans generally favor unrestricted trade, and Bush had given no indication that he thought otherwise.

But within a few months, Bush imposed tariffs on foreign steel. Heeding the advice of his political advisors, Bush went against the conservative grain -- he erected trade barriers to protect the domestic steel industry. Economists were dismayed (some of us might even have shed a tear or two), but the desire to ingratiate himself with steel workers in the politically sensitive states of Pennsylvania and West Virginia proved too strong for Bush.

The policy reverberated around the world. Foreign steel producers were up in arms because restricted access to the large U.S. market meant lower profits. Governments around the world were outraged: How dare the United States, which always preached the virtues of unfettered markets, fetter its own market? Developing countries, even those that produced no steel, were quick to condemn the Bush administration for its hypocritical stance on trade.

Within the country, too, there were some unhappy customers. Domestic users of steel -- automobile manufacturers, construction firms, appliance makers -- faced larger input costs. Free market conservatives like the Wall Street Journal issued periodic rebukes. (But the vigor of their reproach paled in comparison to the lip-smacking approbation of Bush's massive tax cuts in 2001 and 2003 -- there are few ills for the WSJ that a well-timed tax cut cannot cure.)

Eventually the administration relented. A few months ago, with little fanfare, the steel tariff was eliminated. But the damage had been done. In the larger scheme of things, the steel policy was insignificant, a puny tariff imposed on a handful of foreign steel producers. However, the ire it provoked around the world proved to be more long-lasting - and, to some extent, damaging to the conduct of U.S. foreign policy.

The trade woes for the U.S. continue. In a recent ruling, the WTO has granted permission to a number of countries, including E.U., Japan and Canada, to impose tariffs on U.S. exports to these countries.

This latest brouhaha stems from a 2000 U.S. law dealing with anti-dumping duties -- penalties imposed on foreign firms accused of selling their products in the U.S. at artificially low prices. Complaints about dumping are typically brought by U.S. competitors, and under the Byrd Amendment, these firms can receive the proceeds from the antidumping duties that the government collects from the offending foreign firms.

WHILE GOVERNMENTS may, and in fact do, impose duties on foreign firms they deem to have engaged in "dumping," the practice of sharing the revenues with the domestic firms that lodge the complaints is not permitted. The WTO ruled the law illegal in 2002 and asked the U.S. government to repeal it.

But Congress has been unwilling to act, and President Bush, consumed with political imperatives of his own, has shown little inclination to press ahead with it. And so we have arrived at a stage where America faces the unpleasant possibility of sanctions imposed by Europe, Brazil, Japan, Canada, India, Mexico, Chile and South Korea.

Admittedly, the amounts involved, both the duties collected by the U.S. so far and the threatened sanctions against U.S. firms, are relatively meager, totalling less than a billion dollars.

But the recalcitrance of the U.S. government, like in the case of the steel tariff, may prove to be far more damaging for its credibility and leadership in world affairs.

SANJAY PAUL is associate professor of economics at Elizabethtown College.

Back to Articles