I am constantly surprised why countries retaliate when other
countries apply tariffs against their export goods. The Great Depression
of the 1920s and 30s ought to have taught everybody that mutual
protectionism soon gets out of hand and causes harm to everybody. I
suppose it's due to the strong in-group out-group instinct in all of us,
and it gives opportunities for macho male politicians to sound good to
their own constitutents.
When George Bush applied tariffs on imports of foreign steel two years
ago in order to strengthen his electoral prospects in the steel-making
states of Pennsylvania and West Virginia, then the European Commissioner,
René Pascal, ought to have spread the word around quietly in Europe that
America was only shooting itself in the foot. The higher steel prices
that the US steel industry was able to charge because of the protection
immediately started to hurt many of the US's other industries which use
steel. And this, in turn, meant that prices to the US consumer started to
rise. The immediate outcry was from the many small users of steel, but I
have little doubt that much more powerful voices from the American car
industry were talking quietly to the White House.
Nobody has yet been able to refute David Ricardo's Law of Comparative
Advantage, nor have all the studies made on the subject contradicted it
in principle. As Bush's own former trade representative, Sharlene
Barshefsky, once said: "Costs of protectionism far outweigh the
protective benefit."
There is only one (short-term) exception to the fallacy of protectionism
and this is when a country is incubating a new industry. This is
something that David Ricardo didn't take into account. This is
understandable because, at the time of writing, Ricardo was only
considering the high tariffs that England was applying to cheap grain
coming from abroad -- mainly America -- and the suffering that the high
cost of food was imposing on the poor of England. At that time, Enlgand
was sweeping all before it industrially and hardly any other country was
involved to any significant extent. Had other countries been trying to
industrialise quite as vigorously as Asian countries are now, then
Ricardo would have had a far more difficult task in getting his (still
correct) message over to the House of Commons.
The only exception applies when another country is endeavouring to get a
particular new industry off the ground and, in the interim, to prevent
its products being swamped by lower prices from countries with mature
efficient industries. The protectionism is not so much valid for economic
reasons as to give time in which techniques can be developed and a new
skilled workforce trained up. As soon as this is done -- and this can
only be for a few years at the most -- then the protective country had
better start reducing its tariffs, and quickly, in order to ensure that
its own industry keeps its consumer prices low and becomes, and remains,
as efficient as its foreign competitors.
I am sure that Bush took far greater notice from his own car
manufacturers rather than from the European Union commissioner for trade.
After all, both he and Rumsfeld have been talking about 'old' Europe in
the most disparaging, not to say rather nasty, terms in recent months.
However, Bush's statements about Europe have suddenly become far more
diplomatic in the last few days.
This is significant, I think, for quite different reasons than the spat
about steel. Bush is now realising that he hasn't a chance of bringing
about some sort of acceptable Iraqi government without help and is now
warming to the idea of NATO troops helping out. I don't think this will
come off because, presumably, France and Germany will still be insisting
on very early democratic elections in Iraq. This is something that
America can't contemplate because it will bring about a Shia majority in
that country and such a government might continue Saddam's policy of not
inviting any US or UK oil corporations to help develop the massive
oilfields of northern Iraq. But Bush is in an impossible situation right
now and he might as well explore the possibility of a joint NATO-US
solution. Even if it doesn't succeed in due course -- which I'm sure it
won't -- such a proposed arrangement would at least sound good to
the more gullible of the American electorate in the immediate
future.
Keith Hudson
>>>>
US TO DISMANTLE STEEL TARIFFS AND AVOID SANCTIONS
Edward Alden in Washington,
Guy de Jonquiircs in London
Mariko Sanchanta in Tokyo
The US yesterday backed down in the face of threats of international
retaliation and rescinded its tariffs on steel imports.
The decision removes a big source of friction with US trade partners,
particularly the European Union, which was poised to impose sanctions on
$2.2 billion of US exports by December 15 if the measures had not been
scrapped. President George W. Bush said that the tariffs, which had been
due to last for three years, had achieved their purpose by helping US
producers consolidate and regain competitiveness. "These safeguard
measures have achieved their purpose and, as a result of changed economic
circumstances, it is time to lift them," he said. He made only a
small concession to his domestic industry by promising to continue a
monitoring and licensing scheme to guard against the risk of future
surges in steel imports.
Thomas Usher, chief executive of US Steel, said he was
"disappointed" but acknowledged that, "as the president
pointed out, the world has changed a lot in the last 20 months or so in
terms of the competitive posture".
Mr Bush's widely exacted decision follows a final ruling last month by
the World Trade Organisation's appellate body, which found in favour of
complaints by the EU, Japan arid six other countries that the tariffs
violated world trade rules.
Pascal Lamy, EU trade commissioner, welcomed the decision, saying:
"I am pleased to see that, after nearly two years of litigation, the
US has decided to abide by its international obligations." Eurofer,
the European steel industry association, and Japanese steelmakers also
welcomed the president's decision.
US steel-using companies had brought intense pressure to bear on Mr
Bush's administration to lift the tariffs, and yesterday applauded the
decision as well. But the union representing US steelworkers called it
"clear evidence of capitulating to European blackmail". US
officials sought to play down. the significance of the retaliation
threat, arguing that the move was merely a response to the recovery in
the market for steel.
The decision was aided by the recent strong growth in the US economy and
declines in the dollar, both of which have bolstered the steel industry
and make it unlikely that steel prices will fall sharply after the
tafiffs, which remain as high as 24 percent on some products, are
removed.
Mr Bush imposed the tariffs in an effort to shore up congcessioaal
siapport for his trade policies and also to bolster his party's political
prospects in" key electoral states such as Pennsylvania and West
Virginia. But his country's trading partners said the move badly weakened
US credibility in its efforts to push ahead with international trade
liberalisation. Domestically, the political gains may have been offset by
anger among small manufacturers that use steel, which ace concentrated in
other politically important Midwestern states.
While steel industry officials had pushed hard to retain the tariffs for
the full three years that were initially promised by Mr Bush, they have
enjoyed large gains from the nearly two years of tariff protection.
Administration officials played down the likelihood that they would face
a strong backlash in the steel states because they had lifted the tariffs
early. "This is an industry that wanted help for a number of
years," commented Robert Zoellick, US trade representative. "It
.got help."
Financial Times -- 5 December 2003
>>>>
Keith Hudson, Bath, England,
<www.evolutionary-economics.org>
