On Tuesday, the U.S. International Trade Commission voted against imposing new tariffs on countries accused of dumping steel into the United States. The decision follows President George W. Bush's announcement last week that the administration will allow hundreds of exemptions to a different set of steel tariffs that went into effect this past March. While these decisions fight protectionism, they do not go far enough.
The argument for free trade is extraordinarily simple, but some people just don't get it. Since multiple countries produce multiple goods, it is inefficient for any one country to produce all goods. Therefore, countries can improve their welfare by specializing in producing those goods in which they have a comparative advantage and then trading with other countries to get all the necessary materials. This is exactly what individuals do when they get a job doing one thing and then trade the money they earn to purchase other products they do not make.
Tariffs and its cousins quotas and subsidies, stifle trade. As a result, tariffs ensure that every country, both the country with the tariff and the countries exporting goods, is worse off. Protectionism generally hurts everyone, wealthy and poor alike, lowering the standard of living and resulting in relative poverty.
Some argue that anti-dumping legislation, which prevents a foreign company from selling goods at below-cost to corner the market and then increase the price later, justifies protection. These people are wrong. The method in which the government calculates the below-cost is highly suspect and does not present an accurate picture of when or whether dumping is occurring. In the case of steel, the chance that over 20 countries are involved in some sort of oligopoly dumping their goods in the United States is highly unlikely.
Some also argue that steel protection is necessary for national defense. This is an bad argument. Although the United States undoubtedly does need steel for defense, how likely is it that over 20 countries will form an axis of evil to keep steel out of the United States? In any case, the domestic steel industry could always revitalize itself or existing steel could be converted to weapons if the need for defensive steel was so great.
While protectionism does protect jobs in the steel industry, the overall cost to society is huge. Protectionism leads to higher prices for all goods made out of steel, including automobiles and appliances, hurting consumers and causing lost jobs in steel-using industries. It is more efficient for the government to eliminate steel tariffs and then support steel workers with income transfer payments. Such workers can also find jobs in other industries, where their work will be more efficient and their pay higher. Supporters of steel tariffs are condemning steel workers and their children to dead-end, dangerous, inefficient and low-paying jobs.
Bush's reason for instituting steel tariffs is clear: He wants to win votes in West Virginia and Pennsylvania, and since the benefits of steel tariffs are concentrated among steel unions whereas the benefits from free trade are dispersed among all people everywhere, there is political pressure to prevent trade. But even if there is political pressure against tariffs, Bush should show the political courage to stand up for what is right for the United States and the rest of the world: free trade.
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