WASHINGTON, Nov. 17 (UPI) -- In 2002, the Bush administration imposed heavy tariffs on imported steel, intending to protect struggling steel mills in West Virginia and Pennsylvania. The move, which was just as much or more about politics than trade, was widely criticized by the president's own base.
The effort may have produced a costly backfire. Last week, the World Trade Organization's appeals body -- its highest tribunal -- issued a binding ruling that the additional duties are illegal under international rules.
Meanwhile, the European Union is threatening retaliatory sanctions on $2.2 billion worth of U.S. imports and, to ensure the counterstrike hurts as much as possible, is targeting goods, like Florida citrus, from states equally important to Bush's 2004 plans. Question: What should the Bush administration do?
UPI National Political Analysts Peter Roff in Washington and Jillian Jonas in New York debate this critical question.
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Roff: The price of being too clever by half.
The Republicans have been the party of free trade since the end of the second world war. The Democrats, who are by now a virtual appendage of the American labor movement, are the ones who back tariffs and protectionism.
Imagine the surprise when, in 2002, George W. Bush approved a 30-percent protective tariff on steel imported into the United States.
Ostensibly, the tariffs are temporary, designed to give the U.S. steel industry more time to recover from its post-war battering. In reality, the White House was -- with an eye to 2004 -- trying to win the support of the 124,000 steelworkers scattered across the United States but living mostly in the key electoral states of Pennsylvania, Ohio and West Virginia.
It was a costly decision, and in more ways than one.
Much of the president's natural political base reacted angrily to the tariffs, calling them a betrayal of free-market principles.
The tariffs themselves apparently did nothing to help the U.S. steel industry, once the world's largest, to re-establish any kind of stronghold in the marketplace.
They did make steel, and everything made of steel or with steel, more expensive. Tariffs are just a tax on American workers and on productivity by another name.
Any number of studies has demonstrated the folly of Bush's steel tariffs. They did little to win for the president additional political support but did cost American workers jobs -- as all tariffs do.
Now the World Trade Organization, the arbiter of disputes between the industrialized nations, says the tariffs have to come off. If they don't, the European Union has been given permission to impose $2.2 billion in retaliatory tariffs on U.S. goods, most of which -- according to a list the EU put together -- come from states that are as, if not more important to Bush's re-election plans than Pennsylvania or West Virginia.
The administration has been somewhat insulated from the consequences of the tariffs, up to this point anyway. The economy has shown real gains in productivity, economic growth experienced a huge spike in the third quarter of 2003 and unemployment actually dropped just a bit.
Had there been no steel tariffs, however, one can reasonably assume the good news would have come sooner.
The administration has one course of action available to it: it must remove the tariffs and take its political lumps. The tariffs were a bad idea in the first place. Steel is a dying industry in the United States because the labor costs make it too expensive to produce. Protectionist measures only give cover to existing inefficiencies; they don't spark major reforms.
If the tariffs remain, the administration risks a trade war in an election year that might just hand Democrat Rep. Dick Gephardt, D-Mo., the keys to the White House.
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Jonas: The high cost of "free" trade.
The debate over whether or not the Bush administration should back down against the WTO's ruling misses the point.
Despite the fact that imposing steel tariffs was an utter betrayal of his own stated beliefs and adherence to a free trade ideology, President Bush made a transparently calculated move to pander, in this case, to voters in swing states like Ohio and Pennsylvania.
In doing so, Bush ignored the counsel from his own economic team in favor of tactical and short-term machinations promulgated by his political team, headed by Karl Rove.
But the question isn't what should the administration next do, in the face of punitive WTO measures; it's what's wrong with America's trade policies in general?
Our trade deficit currently runs around $500 billion; estimates say it will be $130 billion with China alone by year's end. According to the AFL-CIO, "the U.S. trade deficit with Mexico and Canada has ballooned almost tenfold from $9 billion in 1993 (the year before North American Free Trade Agreement went into effect) to $87 billion in 2002." The Labor Department estimates many of the 3 million jobs lost have been directly attributable to NAFTA.
The so-called free-trade philosophy gained momentum over the last 30 years, but was legitimized by the "greed is good" mentality permeating throughout Ronald Reagan's presidency.
Free trade has allowed companies to abandon planning for their own long-term prosperity in favor of the quick fix of driving quarterly stock prices. This short sightedness was too often manifested by cooking the books, while many corporate big-wigs "earned" astronomical amounts of money.
And millions of U.S. workers who built these companies were left out in the cold, losing their jobs or pensions -- or both -- and millions of stockholders lost their savings.
Proponents never considered -- or even cared about -- its true end result: that ultimately, while America keeps hemorrhaging decent paying, middle-class jobs to developing nations, in most cases, only poverty is being exported.
Because, as the cycle goes, there will always be a poorer, more desperate country to undercut low wages, and no one's standard of living rises. Companies get away with paying poverty wages to workers because they can; meanwhile, their top executives and board members continue to profit off the backs of cheap labor.
U.S. trade policy must be revamped so that abiding by the environmental, labor and safety standards to which we adhere should also apply to our trade partners, and not used as a trade weapon against us for doing the right thing.
We must create mutually beneficial treaties for all nations -- including the United States -- and terminate their use as a reward for the select few who are exploiting and behaving anti-socially.
As Rep. Marcy Kaptur, D-Ohio, said on CNN, "The United States better determine whether it's going to be a nation or just a market."
Otherwise, our race to the bottom will continue at an incalculable cost.
