[no mention of the 'Mexico' bailout as a form of protectionism...] [NYTimes] March 8, 2002 Testing His Metal By PAUL KRUGMAN Just a few days ago, some supporters of George W. Bush hoped that he would show his mettle by standing up to steel industry demands for tariff protection. Instead he capitulated, with a cravenness that surprised even his critics.
It's quite a contrast with Bill Clinton, who - like Mr. Bush - declared his belief in the benefits of free trade, but - unlike Mr. Bush - was willing to spend a lot of political capital in support of that belief. Many Democrats are protectionists, so Mr. Clinton reached out for Republican support to pass both the North American Free Trade Agreement and the treaty creating the World Trade Organization. He defied intense bipartisan opposition to rescue Mexico from its 1995 financial crisis, which might have destroyed Nafta, and resisted pressure to limit imports, including steel imports, during the Asian financial crisis of 1997-1998. It's possible that Mr. Clinton's determination to do what he believed was right on international trade cost the Democrats the White House - not just because West Virginia's electoral votes provided Mr. Bush with his winning margin, but because Mr. Clinton's free-trade policies fueled Ralph Nader's spoiler campaign. Now we know for sure what some of us already suspected: that the Bush administration is all hat and no cattle when it comes to free trade, and probably free markets in general. Never mind Mr. Bush's claim that his decision to impose high tariffs on imported steel was simply a matter of enforcing the law. Nothing in U.S. law obliged him to impose tariffs - and it's pretty clear that the tariffs violate our international trade treaties. We can also dismiss the claim that this was "temporary relief so that the industry could restructure itself." Traditional steel producers are in long-term decline, the result less of imports than of competition from so-called mini-mills, exacerbated by the fact that an increasingly service-oriented economy uses far less steel per dollar of G.D.P. than it used to. A temporary import tariff won't turn this trend around. True, the steel industry does have a special problem: "legacy costs," the benefits steel companies promised to retired workers in happier days. These costs mean that the failure of major companies would cause disproportionate hardship; they also make it hard for the industry to reorganize itself, because no investor wants to buy a company burdened with huge liabilities. But economists long ago concluded that import restrictions are the wrong way to deal with domestic problems. Such problems should, instead, be dealt with at the source - in this case, by having the government take over at least some of those liabilities. Trying to mitigate the problem with tariffs will be far less effective, and will impose a lot of collateral damage. As one harsh critic of the administration's action declared, tariffs "are nothing more than taxes that hurt low- and moderate-income people." Oh, sorry - that wasn't an administration critic. That's what Robert Zoellick, Mr. Bush's trade representative, said a few weeks before his master decided that protectionism in the pursuit of political advantage is no vice. If Mr. Bush really felt he had to do something for the steel industry, why not address the legacy costs? His excuse - that such action is up to Congress, not the White House - was, like the claim that he was just upholding the law, a weak (and characteristic) effort to shift the blame. (Am I the only one who thinks of this as the 'Johnny did it!' administration?) The real reason, presumably, was that direct help to the industry would be an explicit budget item, while the costs of protectionism - though far larger - are mostly hidden. In addition to being bad economics, the steel tariffs are terrible diplomacy. Our staunchest allies are outraged: Britain's prime minister, Tony Blair, pronounced the move "unwarranted, unacceptable and wrong." Even before the steel verdict, the United States was developing a reputation for hypocrisy - ready and willing to criticize others for failing to live up to their responsibilities, but unwilling to live up to its own. Now that our free-trade rhetoric has proved empty, who will listen to our preaching? Let's be clear: Many Democrats were on the wrong side of the steel issue. But it was up to Mr. Bush to show leadership, to demonstrate that he really cares about the principles he espouses. I guess not.
