Now that the Trump administration is talking about a steel tariff of up to 25%, it’s time to talk about what happened the last time the US tried one.
It all went down not so long ago — 2002, under the supposedly free-market-friendly Bush administration. The 30% tariff was gone by 2003, lasting about 20 months.
Why? Because the US got beaten like it stole something.
Steel overcapacity is a problem producers around the world have been trying to solve for decades. It’s a problem that only gets worse when countries turn protectionist and keep floundering companies afloat for longer than the market would allow.
That, however, does not stop countries from trying to put a band-aid on the issue. Here’s what The Peterson Institute for Economics wrote about the tariff when it was floated back in 2002.
“The ‘Joint Remedy’, which calls for tariffs of 15-20 per cent on most products, would slash affected imports by 20 per cent. Domestic prices and output would increase slightly, resulting in somewhat larger revenues for the steel industry. About 3,500 actual and potential jobs could be “saved” but at an annual cost of $US2 billion to the steel users-or $US584,000 per job saved.”
Again, Bush took that a step further and bumped up the tariffs to 30%. Steel producers around the world, from Brazil to China to the EU, got together and lodged a complaint with the World Trade Organisation (WTO).
What Bush did is different from what the Obama administration did when it put tariffs on steel. Obama’s tariffs targeted Chinese firms for illegally dumping specific kinds of steel into US markets. It was not a blanket tariff that included allies.
So there’s that.
In 2002 the EU, especially, was ready to put a hurt on the US economy. It was promising to put up tariffs worth $US2.2 billion that would hit critical swing states. The retaliation that it’s promising now looks much the same. According to the Financial Times, EU officials are considering tariffs on everything from orange juice to whiskey to dairy, if the tariff is enacted.
China has already said in no uncertain terms that it has a plan for retaliation as well. Now, given the growth and importance of China’s economy, that threat is more real than it was in 2002.
And we are in a different climate politically than we were then too. Trump and his administration have shown zero respect for the processes of the WTO. The advisers in the White House pushing this policy, Steve Bannon and Peter Navarro, do not respect international institutions at all. This will not be a fight between friends, it will be a fight between frenemies — and in that case the EU and others may be more swift to act against an administration that they believe does not respect the rule of international law.
Last time, Bush backed down before the EU was able to put up tariffs. This time, we may not be so lucky.
Meanwhile, in the United States, Bush’s experience shows us that the tariff ultimately has mixed results. Manufacturers that depend on cheap steel for their supply chains get hurt. When all was said and done, the Institute for International Economics (IIE) estimated that as many as 26,000 jobs were lost in steel-using industries (like the auto industry, for example).
So yeah, this is a dumb idea.