Mar 14, 2018

Lessons of the Past: Tariffs Bring Harm to Economy, Consumers

Post by Freedom Partners

Arlington, VA – As leading economists, academics and policy experts continue to warn against the grave economic harms of imposing tariffs, specifically those announced by the Trump administration on steel and aluminum imports, a look back at the failed steel tariffs imposed by the Bush administration reveals that many of the arguments made in support of those tariffs are similar to the ones being made today.

In 2002, the Bush administration argued that tariffs ranging from 8% to 30% would help American steel without causing a “secondary reaction” to those outside the industry. That claim was quickly proven false, as the policy cost more jobs than it saved, and drove up the prices of everyday goods. Trade experts and champions of free trade have joined together, warning of similar results following recent proposals by the Trump administration.

Bush Administration’s Failed Steel Tariffs Had Familiar Sales Pitch

In 2002, The Bush Administration Placed A 30 Percent Tariff On Steel As A Way To Give “Breathing Room” To The Steel Industry While They Adjusted To Competition From Imports.

Commerce Secretary Donald Evans Promoted Steel Tariffs As A Short Term Solution To The Steel Industry’s Struggles With Low Priced Imports.

Commerce Secretary Donald Evans Promoted The Steel Tariffs As A Solution to Fix “This Steel Problem … Once And For All.” “Earlier this month, Bush imposed a three-year package of tariffs and quotas of 8 percent to 30 percent on imported steel, depending upon the type. The plan is aimed at helping the steel industry recover from years of competition with low-priced imports. … ‘Once and for all, we’re going to fix this steel problem,’ Evans said. ‘Once and for all, we’re going to get this industry restructured so it can continue to be competitive in the world.’” (Andrew Welsh-Huggins, “Commerce Chief Promotes Decision On Steel Tariffs,” Associated Press State & Local Wire, 3/18/02)

Undersecretary Of Commerce Grant Aldonas Defended President Bush’s Tariffs As A Protection Against Foreign Government Subsidies Distorting The Market. “Under Secretary of Commerce Grant Aldonas has defended President Bush’s imposition of temporary higher tariffs on steel imports in order to give the U.S. industry a chance to restructure. In September 25 testimony before the House of Representatives Small Business Committee, Aldonas argued that the president’s policy aims to achieve an international solution to the global steel glut caused by foreign government subsidies and other market-distorting practices.” (“Text: Commerce Dept’s Aldonas Defends President’s Steel Tariffs; Under Secretary Attributes Price Rise To Number Of Reasons,” State Department, 9/25/02)

President Bush Announced That The Tariffs Would Help Steel Workers And Their Communities Without Harming The Economy.

President Bush Claimed The Tariffs Would Allow The Steel Industry Adjust To Changes Without Harming The Economy.

President Bush: “This Relief Will Help Steel Workers, Communities That Depend On Steel, And The Steel Industry Adjust Without Harming Our Economy.” “Today I am announcing my decision to impose temporary safeguards to help give America’s steel industry and its workers the chance to adapt to the large influx of foreign steel.  This relief will help steel workers, communities that depend on steel, and the steel industry adjust without harming our economy.” (Press Release, “President Announces Temporary Safeguards for Steel Industry,” Pres. George W. Bush White House, 3/5/02)

  • President Bush Argued The Tariffs Would Allow “Workers To Compete On A Level Playing Field.” “President Bush on Tuesday slapped punishing tariffs of 8 percent to 30 percent on several types of imported steel in an effort to aid the ailing U.S. industry, drawing criticism from American allies and mixed reviews in Congress. ‘An integral part of our commitment to free trade is our commitment to enforcing trade laws to make sure that America’s industries and workers compete on a level playing field,’ Bush said in a statement issued by the White House.” (Ron Fournier, “Bush Imposing Steel Tariffs Of Roughly 30 Percent To Help Ailing U.S. Industry,” Associated Press, 3/5/02)

Secretary Of The Treasury Paul O’Neill Said He Believed The Tariffs Would Help The Steel Industry Without Causing A “Secondary Reaction” To Those Outside The Industry.

Secretary Of The Treasury Paul O’Neill Said He Believed The Tariffs Would Help The Steel Industry Without Causing A “Secondary Reaction” To Those Outside The Industry.

Secretary Of The Treasury, Paul O’Neill Said He Believed The Tariffs Would Help The Steel Industry And Not Cause A Negative “Secondary Reaction” For Anyone Outside The Industry. “Treasury Secretary Paul O’Neill said today President Bush’s decision to impose tariffs on imported steel was intended solely to give US steelmakers a chance to make necessary changes, not to gain a trade advantage. … ‘I think, hopefully, this will work and will ease the process of restructuring in the U.S. industry and not cause a secondary reaction that will be negative for everyone outside of the steel industry.’” (“O’Neill Emphasizes Steel Tariffs Only Temporary Measure,” The White House Bulletin, 3/6/02)

US Trade Representative Bob Zoellick Claimed The Most Important Part Of The Tariffs Was Helping Steel Workers Keep Their Jobs, Ignoring Possible Price Increases.

US Trade Representative Bob Zoellick Said The Most Important Aspect Of The Tariffs Was To Protect Jobs, But Claimed It Was Not His “Business” to Guess Price Increases.

US Trade Representative Bob Zoellick Said The “Most Important Aspect Of [The Tariffs] Is To Try And Help People Keep Their Jobs.” “QUESTION: You mentioned the fact that this allows some breathing room for the steel companies. Many of them as well as people in the industry have talked about the need to deal with the legacy costs for steel workers, and I know there is some resistance in the administration to doing something specifically for steel, but is there a new proposal the administration will make to deal with the problems of workers displaced by foreign competition, something new as a result of this effort? B. ZOELLICK: Good question. The first and most important aspect of this is to try to help people keep their jobs, because that’s the best way to have a pension plan and a health plan and to take care of your family and your community. So we hope that this breathing space will help steelworkers and their communities have a chance to make it.” (“Special White House Briefing With U.S. Trade Representative Bob Zoellick,” Federal News Service, 3/5/02)

  • Zoellick Said “Guessing Prices Is Not My Business” When Asked Whether The Tariffs Would Raise Costs For American Consumers. “Q (Off mike) — raise the prices –B. ZOELLICK: Well, I’ll come to that next. You know, maybe you had experience with GOSPLAN. I only used to talk to them. I think in reality, you know, it’s hard to predict what the prices will be. You start out with the fact that they’re at 20-year lows. You know, this will — it will partly depend on what the production decisions are by U.S. firms. We will continue to have imports, not only from our NAFTA partners, but under this, as — you know, if we get into some of the details, there’s some provisions for, obviously, the developing countries, there is something called the tariff rate quota, which allows certain semi-finished product in without a tariff. And then ultimately, it depends on the demand side. And you know, and that’s — while I hope the economy is in the process of recovering, that is also going to affect prices. The best thing I can do is to tell you to go look at the futures markets or the prices that people are having, and what you start to see there is is that from these 20-year lows, you’re starting to get price increases of maybe 4 or 5 percent, and those might go up over time. But, you know, guessing prices is not my business.” (“Special White House Briefing With U.S. Trade Representative Bob Zoellick,” Federal News Service, 3/5/02)
  • When The Tariffs Were Lifted In 2003, Zoellick Noted That Steel Prices Were 15-30 Percent Higher Than Before The Tariff. “U.S. Trade Representative Robert B. Zoellick echoed the president in explaining the lifting of tariffs, saying sales of domestic steel and company profits are up dramatically. ‘Not only is the industry much stronger today than it was 21 months ago, but the economic circumstances that justified the safeguard have changed,’ Mr. Zoellick said. He noted that production has risen across the board on more than a dozen major steel products and said ‘prices today are about 15 to 30 percent higher than in February 2002, the month before the safeguard.’” (Press Release, “Statement By USTR Zoellick On Termination Of Steel Safeguards,” Office Of The United States Trade Representative, 12/4/03)

Officials From The Bush Administration Are Warning The Trump Administration That The Tariffs Will Have “Unintended Consequences” And Are A Bad Idea For The Whole Economy.

Officials From The Bush Administration Are Now Warning The Trump Administration That The Tariffs Could Have “Unintended Consequences.”

President Bush’s Former Chief Of Staff, Andy Card, Warned The Trump Administration The 2002 Tariffs Did Not Have The Results They Anticipated. “President Trump wants to tax steel coming into the United States. He isn’t the first president to try this. George W. Bush put tariffs on a lot of steel imports in March 2002. Top Bush administration officials now say that was a mistake, and they are warning Trump not to make the same blunder. ‘I don’t think it was smart policy to do it, to be honest,’ said Andrew H. ‘Andy’ Card Jr., Bush’s chief of staff from 2001 to 2006. ‘The results were not what we anticipated in terms of its impact on the economy or jobs.’” (Heather Long, “Remember Bush’s 2002 Steel Tariffs? His Chief Of Staff Warns Trump Not To Do The Same,” Washington Post, 3/6/18)

  • Card Said The Bush Administration Did Not Anticipate The “Unintended Consequences” Or Lost Jobs Following The Tariffs. “‘We didn’t expect it to cost us jobs,’ Card said. ‘Once the tit-for-tat starts, there are unintended consequences. You don’t know the extent of how everyone else will react.’” (Heather Long, “Remember Bush’s 2002 Steel Tariffs? His Chief Of Staff Warns Trump Not To Do The Same,” Washington Post, 3/6/18)

Former Bush Deputy Chief Of Staff For Policy Josh Bolten: Steel Tariffs “A Bad Idea Overall For The Whole Economy.” “‘Whether the original thing was a mistake or not, and there’s a good argument that it was in 2002, there’s no question doing the same thing under 232 is a mistake of a much bigger magnitude,’ Bolten said. He is now president of the Business Roundtable, an advocacy group for leading American executives. ‘This is a bad idea overall for the whole economy. ‘” (Heather Long, “Remember Bush’s 2002 Steel Tariffs? His Chief Of Staff Warns Trump Not To Do The Same,” Washington Post, 3/6/18)