Economic Lessons from Bush-Era Steel Tariffs
Tuesday, March 13, 2018
This week, President Trump imposed tariffs on imported steel and aluminum, at 25 and 10 percent respectively, with exceptions for Mexico and Canada. The plan, though controversial, is nothing new: Former President Bush implemented a 30 percent tariff on imported steel in March 2002 — which resulted in a small amount of economic boon.
“After the Bush tariffs went into effect, steel prices rebounded,” says Benjamin Liebman, Ph.D., professor of economics, whose 2007 study “Steel Safeguards and Welfare of U.S. Steel Firms” examined the long term effects of this decision. “U.S. steel showed signs of improvement, but they probably had little to do with the policy.”
Instead, he cites the changing macroeconomic landscape and declining production capacity for the industry’s growth. “Dollar depreciation and demand from China also worked to lift prices, though the latter came at a delay: Executives seemed to wait to make sure increased appetite wouldn’t be transitory,” says Liebman in a recent Bloomberg article.
According to Liebman, the U.S. is constantly placing tariffs on foreign steel — especially from China. The difference is, he says, is that those use trade protection policies broadly accepted under international trade law by the World Trade Organization (WTO).
“The unfair trade laws, which include tariffs to protect us from unfair import pricing (called 'dumping') and illegal foreign government subsidization, have been very aggressively used by our steel industry,” says Liebman.
Looking backwards, Bush-era tariffs were short lived: After the industry grew healthy enough, the President rolled back his policy in 2003 — just two weeks before the European Union retaliated. Perhaps, Liebman posits, the new tariffs will only last long enough to revitalize the industry.
“The President has already decided that Canada and Mexico could earn exceptions for accepting his NAFTA renegotiations,” says Liebman. “I wonder if similar concessions for other countries, like the EU, will be made."
The U.S. has seen a half century of protecting the steel industry, according to Liebman, in the form of price floors, quota systems and tariffs. He is curious whether a broad policy, even one that involves coordination with our trade partners, will replace the President’s new plan.
“These tariffs are in place for now,” he concludes, “but down the line, I’d expect a deal to be proposed that somewhat satisfies everyone — without making it seem like the President backed down. At his core, he’s a deal maker: What kind of deal can satisfy the industry, our trade partners, big steel users like GM and Ford, and the political sphere?"
Professor of Economics Benjamin Liebman, Ph.D., is an expert in international trade and the steel industry. He can be reached for comment at email@example.com, or by contacting the Office of Marketing and Communications at 610-660-1222.