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The Steel Ripoff

Mises Daily: Monday, March 11, 2002 by

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In its dealings with foreign nations, the U.S. generally tries to maintain the moral high ground in its pronouncements and policies. But by slapping a 30-percent tariff on foreign steel, the U.S. has hit rock bottom in hypocrisy and favoritism, and everyone knows it. 

The idea here is to help one inefficient, bloated, and pampered industry at the expense of all U.S. consumers of steel, including U.S. businesses, and all producers in Europe, Asia, Brazil, and Australia. This is brazen protectionism, deeply harmful all around, not to mention morally repugnant. 

It is also a terrible example to the world. What business will the U.S. have telling Latin American nations to curb mercantilist policies that privilege government-connected businesses and punish everyone else? What moral authority remains for the U.S. to tell Japan that its system of crony capitalism must come to an end? Who will pay a whit of attention to any U.S. president who decries subsidies and industrial planning in other people's countries? 

The repercussions are already being felt via damaged relations in Latin America and Europe. The World Trade Organization will likely give the green light for retaliation. Russia has already banned imports of U.S. chicken, and protectionist lobbies all over the world are rushing to take advantage of the opportunity. 

This is bad economics all around. President Bush said the tariffs are merely designed to allow the U.S. steel industry "to adjust to surges in foreign imports." In fact, the tariff does exactly the opposite. It permits the industry to refuse from adjusting to reality. It allows U.S. industry to continue to overproduce, overpay, and do so with outdated, inefficient, and costly methods. It postpones the day when steel must deal with the reality that other nations have dreamed up better and cheaper ways of doing things. 

As for the implication that this is just designed to get steel through a temporary period of tough times, that is pure rubbish. There has been no flood of imports. Less steel is imported today than five years ago. But the facts don't matter, apparently. Ever since the artificial boost that steel received from World War II, the industry has gone through many rounds of "temporary" tough times. It has been rescued again and again, with tariffs, quotas, loan and pension guarantees, union privileges, and a hundred other gimmicks that stand in total opposition to the idea of free enterprise, all to keep a clean coat of paint on the great artifice. 

The tradition that gives rise to such bailouts at everyone's expense is Soviet to the core. The theory of the Politburo central planners was that so long as everyone was employed doing something, especially if that something involved making big machines to boost industrial production, all was well. Never mind that the stuff they were making was super costly and unmarketable outside the confines of the Soviet state. It seemed to work for a while, and then one day everyone looked around to discover that the world had passed them by. 

So it is with U.S. steel, which has long thrived at its current size due to its connections to government. The Bush administration is doing its best to keep a failing system and a failing industry pumping along, no matter the cost to other U.S. businesses and consumers. Some economists say the costs approach $8 billion, but that figure is spurious because the opportunity costs (what might otherwise be done with the resources were they not consumed by economically unviable projects) are essentially incalculable. 

In economic terms, tariffs are indistinguishable from taxes. They take people's property by force by requiring businesses and consumers to pay far higher prices for goods than they would otherwise pay in a free market. To that extent, they harm the prospects for economic growth. If anyone says otherwise, he is ignoring hundreds of years of scholarship and the entire sorry history of government interference with international trade. 

And then there's the question of trade war. No government in the world today takes a principled stand for unilateral free trade (the only policy consistent with free-trade ideals). Every government is looking for a good excuse to adopt the policies of autarky, taxes, protection, and industrial subsidies. Bush's steel tariff hands an excuse to the world. We can only hope that some enlightened leaders will stop short of full-scale trade war. 

Finally, some people claim that propping up the steel industry is necessary because the nation is at war and war requires steel. Thus, American consumers need to be ripped off to support the munitions manufacturers. But notice that the bomb manufacturers themselves must also pay higher prices for steel, so they aren't being helped. Steel tariffs only make it more costly to build the same weapons the U.S. would otherwise produce in absence of the new tax. 

As for the war excuse generally, it could also be cited in defense of complete autarky since there's hardly a producer or consumer good in existence that war planners can't find some use for. When policymakers start talking this way, look out. Most hot wars begin in trade wars. Witness the current war on terrorism, which began with a mass murder driven by revenge against persistent U.S. trade sanctions

Bush's new tariffs create more enemies and antagonize friends at the very time when the U.S. ought to be doing its best to win friends and influence people in the direction of freedom. Let there be no talk of the "fairness" of these tariffs. Here's a better description of them: a shameless act of mass thievery. 


Llewellyn H. Rockwell, Jr., is president of the Ludwig von Mises Institute in Auburn, Alabama. Send him MAIL and see his Mises.org Article Archive. See also Murray Rothbard's Fairness and the Steel Steal and William Anderson's A History of Privilege. Also see Ludwig von Mises' Autarky and its Consequences (1943).