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The big meltdown: Why steel tariffs were a no-win for president

By Warren Vieth
Los Angeles Times

	ROGER WERTH / THE (LONGVIEW) DAILY NEWS A worker at the Port of Kalama, Wash., looks over a new shipment of unprocessed imported steel in 2002 at the Steelscape plant, which galvanizes and paints the rolled steel for its customers.
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When President Bush imposed tariffs on steel imports 21 months ago, his advisers saw them as a way to assist an industry in need, shore up support for Republicans in the Steel Belt and advance America's trade agenda, all at the same time. He ended the tariffs yesterday, 15 months before their scheduled expiration.

In the end, they made hardly anybody happy.

As many jobs were lost in industries that buy steel as were saved in mill towns such as Cleveland, analysts say. The administration undercut its own credibility in the broader push for free trade while alienating other nations.

And steelworkers ended up endorsing a Democrat for president anyway.

"They're not heroes to the downstream steel users because they screwed them for 21 months. And they're not heroes to the steel producers because they gave them something and then took it back," said Brink Lindsey, director of trade policy studies at the conservative Cato Institute. "It turned out to be messy if not self-defeating politics."

Faced with growing opposition from domestic steel consumers and imminent retaliation by foreign trading partners, Bush declared his mission — strengthening the industry — accomplished.

Yet to some industry insiders and analysts, the president's announcement sounded more like an admission of defeat, a view shared by several workers in Cleveland, the steel-making capital of Ohio.

Although several ailing companies have been acquired by new owners and shuttered plants have been brought back on line, steelworkers said the industry's restructuring was far from complete. Other companies remain mired in bankruptcy, and their prospects may be poorer without the safety net of steel tariffs.

"It really galls me," said Tony Panza, a training coordinator at the giant Cleveland Works steel mill. "It took us two years to get any help. We lost thousands and thousands of jobs and a lot of plants just to get the president to finally do what he knew was right. Now look at his resolve."

Even among those industries that buy large amounts of steel, which generated much of the pressure to rescind the tariffs, there was a sense the president's action had come too late to save companies caught in a severe price squeeze.

"When the tariffs came, they mortally wounded a significant percentage of the metal stampers," said Bill Adler, president of Stripmatic Products, a Cleveland auto-parts fabricator. "A lot of the damage has already been done."

For Bush, in the view of some analysts, it was a matter of cutting his losses.

"His tariff decision may cost him some votes, but European Union retaliation would have cost him a lot more," said John Pitney, professor of government at Claremont McKenna College in California. "Trade wars kill jobs and end presidencies."

When the administration imposed the tariffs in March 2002, the domestic steel industry was on the ropes. A supply glut had pushed prices to 20-year lows, more than 30 steel makers had filed for bankruptcy, and nearly 50,000 jobs had been lost in three years.

The tariffs on imported steel were designed to give the industry breathing room to restructure by enabling U.S. steel makers to raise prices. They were also expected to pay political dividends by helping win congressional passage of "fast-track" trade-negotiating authority for the president, secure the re-election of vulnerable Republican legislators in the 2002 midterm elections, and improve Bush's odds of carrying several critical swing states in 2004, particularly Ohio, Pennsylvania and West Virginia, all major steel producers.

Ahead of schedule

The first two objectives were realized: Bush narrowly won fast-track authority with the help of steel-state legislators, and Republicans prevailed in key congressional races. But by ending the tariffs ahead of schedule, analysts said, Bush might have negated any beneficial effect they might have had on his re-election prospects.

"It's not going to be good for the president," said Peter Morici, a University of Maryland economist who represented steel producers in their efforts to preserve the tariffs. "I don't know of any math that permits him to become president for a second term if he doesn't win some of the states along the steel-making string of Pennsylvania, West Virginia, Ohio, Indiana and Michigan."

Several analysts said it appeared Bush's advisers made at least two significant misjudgments in devising the original protection plan.

First, the administration assumed incorrectly that even if the tariffs were struck down by the World Trade Organization, which they were this year, it would take about 36 months before U.S. trading partners would be able to retaliate. By that time, the tariffs would have expired and the 2004 election would be history.

Instead, in a departure from previous disputes of this kind, the European Union was preparing to slap $2.2 billion in punitive tariffs on a wide variety of U.S. exports as early as next week. The targets were carefully chosen to inflict maximum political pain: Florida citrus, Carolina textiles, Midwestern manufactured goods, California farm products. It would have meant the biggest trade war in decades.

Second, the White House did not anticipate the extent of opposition the tariffs would generate among businesses that turn steel into finished products such as cars and appliances. Instead of passing higher prices on to consumers, many steel-fabricating companies were forced to swallow the additional costs by customers who threatened to take their business to China or elsewhere.

Analysts said the domestic backlash turned out to be far fiercer than expected, jeopardizing Bush's political prospects in Michigan, Wisconsin and other steel-buying states he hopes to carry next year. Meanwhile, the expected payoff in steel-producing states was called into question when United Steelworkers of America endorsed the presidential bid of Democrat Rep. Richard Gephardt of Missouri.

"It's very difficult for a Republican who's rhetorically a free-trade president to win over blue-collar union workers," said Gary Hufbauer, senior fellow at the Institute for International Economics in Washington. "I think even if he had kept the tariffs in place, he would not have gotten their support in the election."

The final straw, several analysts said, was the prospect of an international trade war that appeared likely to start much sooner than the administration had initially calculated. Not only were the Europeans planning imminent retaliation, but Japan, China and other countries were threatening to follow suit.

Taking on the WTO

Mickey Kantor, President Clinton's U.S. trade representative, said he thought Bush was justified in imposing the tariffs last year to spur steel-industry restructuring and secure fast-track negotiating authority. But he faulted the president for not rescinding them when they first were struck down by the WTO in March. Instead, the administration appealed, dragging out the process for eight months.

"The administration generally has given the rest of the world the impression that we don't play well with others," Kantor said, referring to its unilateral actions on a range of issues. "Not following the dictates of the WTO early on was just one more example of that."

In the view of some analysts, though, following the dictates of the WTO is exactly what the president should not be doing.

"We really have to confront the fact that the WTO is not working for the interests of American industry or American workers," said economist Robert E. Scott at the liberal Economic Policy Institute in Washington. "Bush blinked in this case. He could have taken on the Europeans, and gone tit-for-tat with them. I think they would have backed down at some point."

Panza, the training supervisor at the Cleveland Works steel plant, offered what Bush might consider the ultimate insult.

"I think he's a liberal," Panza said of the president. "Trying through economic ways to save the rest of the world is very liberal. I thought we got away from that kind of liberalism a long time ago. We should worry about our own country."

Los Angeles Times staff writer Richard Simon in Washington contributed to this report.

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