Canton Repository

September 28, 2003

Steel tariffs may be factor in 2004 race

Copley News Service

WASHINGTON — With disappearing manufacturing jobs darkening his re-election prospects in Ohio and other crucial Rust Belt states, President Bush faces a pivotal decision over the tariffs he imposed 18 months ago as a lifeline for the domestic steel industry.

Two voluminous reports prepared by the International Trade Commission and released recently deliver a mixed verdict, saying that the tariffs have helped the industry strengthen itself while inflicting marginal damage on the overall economy.

But with the European Union poised this fall to slap retaliatory tariffs on a range of United States exports, Bush must weigh a complex set of competing interests in deciding whether to continue, modify or repeal the duties before they expire in early 2005.

A major consideration will be the political impact of the decision on a handful of steel-producing states that could determine the outcome of a close presidential election in 2004. The shriveling industrial base of states like Ohio and Pennsylvania raises the political stakes and probably argues for a decision to retain the tariffs, according to a range of experts.

“This is a slam dunk,” said Larry Sabato, a political scientist and elections expert at the University of Virginia. “From a political perspective ... Bush would be insane to do anything but please those swing steel states that really care about this issue.”

Even so, a loose coalition of industries that depends on access to cheap steel has arisen to challenge the tariff. It claims that American consumers are paying a heavy price simply to provide protection to a handful of steel makers who can’t keep up with foreign competitors.

Retaining the tariffs, which range as high as 24 percent on some imports, would only add to the lingering strains between the administration and the free-trade wing of the Republican Party. Bush himself came to power as a proponent of open borders and has largely adhered to a free-trade position — with exceptions in the cases of steel and farm subsidies.

“I have a hard time understanding where these tariffs come from, given the administration’s general position on free trade,” said Marc Miles, an economist at Heritage Foundation, a conservative think tank. “When you put in a tariff you eliminate competition and the need to innovate. That would seem to me the last thing you would want to do at a time when industries are under cost pressures and can’t raise prices to ease those pressures.”

Steel-using industries, such as auto-parts manufacturers in Michigan, have been lobbying the administration to lift the tariffs. They argue that the administration’s move to bolster steel producers has raised their costs and forced them to shed jobs. The ITC studies largely dismiss that claim, but the argument is likely to continue.

“I think this election will increasingly turn on manufacturing job losses,” said William Gaskin, chairman of the Ohio-based Precision Metalforming Association and a chief spokesman for the steel-using interests. “I think it’s the votes of people who are no longer employed in manufacturing that are at risk.”

“Producers are just as organized as steelworkers — and they are watching profits going down and they are not happy. And they are watching market share go down, and they are not happy,” said Miles. “So we have two squeaky wheels here, and I don’t know which will squeak loudest.”

Claire Buchan, a White House spokesman, said on Friday that Bush has not yet fixed a deadline for deciding the issue.

“We will be talking with interested parties including consumers, members of Congress, manufacturers, and users — and reviewing the issue,” Buchan said. “The process is ongoing.”

Bush’s re-election strategy will focus closely on such heavily unionized states as Ohio, West Virginia and Pennsylvania.

In the closely contested 2000 election, Bush won Ohio and West Virginia while losing Pennsylvania by narrow margins.

Steel is an important component of the economies of all three states, with Ohio and Pennsylvania suffering significant manufacturing job losses during Bush’s term. West Virginia has held its own, losing only about 2,700 such jobs over the last year.

Political experts in those states say that the issues involved in the steel tariff decision are complex and difficult to sort out because of the diversity of their economies.

For example, in Ohio, the nation’s second largest steel producer, continuing the tariffs would avoid an uproar among steelworkers but would not necessarily turn them into Bush supporters, said Rick Farmer, a fellow at the Ray C. Bliss Institute of Applied Politics at University of Akron.

“While the steel companies and steelworkers may prefer to keep the price of steel high, there are other groups, large groups in Ohio, that would rather see the price of steel decline,” he said, noting that Ohio is a top auto-making and manufacturing state. “It’s a tough call.”

Bush’s economic-policy team of free traders is believed to be urging the president to abandon the tariffs, but his political aides are certain to point out that voters hurt by trade deals tend to mobilize with greater effectiveness than the beneficiaries.

“People tend to notice specific losses more than general gains,” said Norm Ornstein, a political analyst at the American Enterprise Institute. “It is no contest if the issue is choosing between people in Ohio who might say it’s great that they can buy a car for $35 less because of free trade and angry voters who might say, that guy cost me my job.”

In the months after imposing the tariffs, Bush attempted to soften the decision’s impact by extending exemptions to imported steel products important to specific industries. He might try a similar approach now by retaining the duties and offsetting loopholes that would enable key steel-users to find supplies outside the United States.

“It’s pretty clear that politics will push Bush into retaining some form of protection, but he might tip his hat to the free traders in his own party by modifying the present order,” said Steve Smith, a public policy expert at Washington University in St. Louis.