May 24, 2006
Gambling on Trade
In 2001, the Bush Administration set in motion the machinery to impose tariffs on steel imports. The purported reason was to secure fast track (trade negotiating) authority. How does that gamble look five years later?
The Bush Administration came into office with an ambitious pro-business, purportedly pro-free-trade agenda. However, one of the earliest actions undertaken by the Administration in the trade area was imposing safeguards on the steel industry. This was an action that cost consumers and downstream steel users billions of dollars. Why? Because, according to the accounts of the time, it was to secure fast track (formally, trade promotion) authority from the Congress. I will leave it to others (also here) to decide whether -- as some have speculated -- the true reason was to secure the votes for the 2004 election.
What did fast track authority buy? The United States' ability to negotiate credibly in the Doha Round. But where is Doha? Regarding USTR Portman's recent move to OMB, an Economist article observes:
[T]he most important change, in terms of economic policy and relations with China, is the shift of Rob Portman, Mr Bush's top trade negotiator, to head the Office of Management and Budget, which oversees the $2.8 trillion federal budget.
What does this mean? One obvious conclusion is that Mr Bush has scaled back his ambitions for freer trade, either in the multilateral Doha round or in the plethora of bilateral trade deals that America is negotiating. Mr Portman's political stature and connections on Capitol Hill (he was previously a member of the House) showed that the Bush team was determined to get trade deals through Congress.
That the White House sees little need for a heavyweight in the trade job suggests it is sceptical about the Doha round, reluctant to push controversial bilateral deals and in no mood to try to convince Congress to extend the Trade Promotion Authority, which expires in June 2007. All this is a blow for freer global trade, but the decision is neither surprising nor unjustified. Despite Mr Portman's efforts, the Doha round is virtually dead. With French and Italian politics in turmoil, Europe seems unlikely to be able to make the tough decisions necessary to get a deal done. In that dismal climate, you can hardly blame the White House for moving one of its few stars elsewhere.
So Doha may not be dead, but quite close to it. On other fronts, there are questions regarding how the Bush Administration's enthusiasm for negotiating free trade agreements has harmed the enterprise of negotiating freer trade worldwide, as noted in this Bloomberg article.
President George W. Bush's strategy of using individual accords as stepping stones to a unified, global system of trade may be backfiring.
The bilateral pacts have increased pressure on Canada, China and Europe to seek their own separate deals at the expense of a new World Trade Organization accord, economists and lawmakers say. The result is a series of conflicting agreements that may do more harm than good, they say.
Ex ante, perhaps the gamble of imposing steel tariffs was worth it. Time will soon tell whether it was also worth it, ex post. Right now, in totalling up the costs versus benefits, we know the costs. According to Hufbauer and Schott (2003), prices for steel rose by between 1.3 to 5.1 percent between the first and third quarters of 2002, with the midpoint estimate at 3.3 percent. As far as they could ascertain, there was no change in the number of jobs. Some estimates of cost (in the hundreds of thousands dollars) per job saved are provided here, while general welfare costs, etc. are examined in an USITC study here). (In autumn of 2003, the WTO ruled these tariffs illegal, setting a less than stellar precedent for U.S. trade policy.)
Posted by Menzie Chinn at May 24, 2006 05:33 PMdigg this | reddit
Nice bit of analysis! Thank you. The Cheney-Bush Administration never really pretended to be about free markets. Only industrial favoritism. The Energy Task Force alone should tell us that. So should the longevity of incompetent crony capitalists like Trasury Secretary Snow. And the amazing Secretary Bodman at Energy.
The real mystery is how they got real conservatives to sign on as cover.
Posted by: Duncan Brown at May 25, 2006 09:32 AM
Wouldn't the electoral votes of OH and PA figure into the republican's steel strategy? They demand votes; anything else is more of a study in correlation ...
Posted by: caveatBettor at May 25, 2006 11:41 AM
I suggest we fix the damage from NAFTA before we put together more trade agreements.
What the economists told us:
"Free trade makes us more prosperous."
What really happened:
"Free trade makes some much more prosperous and other much less prosperous."
Posted by: save_the_rustbelt at June 4, 2006 06:24 PM