It Seemed Like a Good Idea...

By DHinMI

Karl Rove thought imposing tariffs on steel was the perfect wedge issue—he just never realized that the electoral coalition it would drive a wedge through would be his own.

In 2002 George W. Bush ordered tariffs on steel imported from overseas. Russia, China, Brazil and other developing nations were being accused of dumping steel on American markets., and despite raising their productivity by shifting production from the obsolescent big mills to efficient mini-mills, domestic producers still couldn’t compete against the cheaper foreign steel. Bush touted the tariffs as a tool to protect American jobs from unfair competition—he was conveniently silent about price supports to American farmers—but it was really nothing more than policy dilettante Karl Rove’s gambit to hold Republican votes in West Virginia and Ohio and gain a few more in Pennsylvania.

Rove was surely pleased with himself for securing a policy meant to lure union voters in steel-producing states. Too bad for him that he didn’t consider how this “socialization of conflict” was not likley to divide labor unions but was likley to expose rifts between steel producers and manufacturers, thus undermining Rove’s reelection strategy of milking big dollars from small manufacturers and big votes in the industrial Midwest.

Over forty years ago the political scientist E. E. Schattschneider described the process by which private competition between business or pressure groups draws the public into the “socialization of conflict.” “One of the characteristic points of origin of pressure politics,” wrote Schattschneider, “is a breakdown of the discipline of the business community… It is the losers in intra-business conflict who seek redress from public authority. The dominant business interests resist appeals to the government.” Seen in this light, it is natural for steel producers to band together to secure government protection from their lower-charging competitors. But it is just as natural for steel consumers to fight a government policy that bumps up their production costs—the reaction that Karl Rove expected from Brazilians, Russians, Chinese and Europeans, but which he never anticipated from Republicans in Grand Rapids and Nashville.

Yesterday the U.S. International Trade Commission reported that the steel policy “had a slightly negative impact on the U.S. economy...” Economically and politically, says the Washington Post, “Steel Tariffs Appear to Have Backfired on Bush”:

…key administration officials have concluded that Bush's order has turned into a debacle. Some economists say the tariffs may have cost more jobs than they saved, by driving up costs for automakers and other steel users. Politically, the strategy failed to produce union endorsements and appears to have hurt Bush with workers in Michigan and Tennessee -- also states at the heart of his 2004 strategy...
…Perhaps worse for Bush, the tariffs alienated thousands of small businessmen who run steel-consuming companies. "He didn't win the steelworkers over, and he sure as hell didn't win the users over, and there are a hell of lot more of us," said Jim Zawacki, chief executive of G.R. Spring & Stamping, Inc., a small manufacturer in Grand Rapids, Mich…

It’s not just steel manufacturers complaining either; it’s also Republicans in Congress. Lamar Alexander says Bush’s steel policy has "shifted more steel-consuming jobs overseas than exist in the steel-producing industry in the United States," and eight of Michigan’s nine Congressional Republicans wrote a letter to Bush in which they claim the steel tariffs “have caused some steel consumers, notably in the electronics and automotive parts and components industries, to move production offshore or buy finished steel products and import them from offshore…The connection between the tariffs and the pressure they have created to shift sourcing of finished and intermediate steel products—and manufacturing jobs with them—is becoming clear to the people of Michigan.”

And probably to the people of many other states as well. According to the Consuming Industries Trade Action Coalition, West Virginia has 9 times more jobs based on consuming steel than those based on producing steel. In Pennsylvania the ratio is 16-1, in Ohio it’s 20-1. The ratio is far higher in other battleground states with significant manufacturing, like Missouri (125-1) and Iowa (127-1), and even in the iron ore producing-states of Michigan (68-1) and Minnesota (228-1). ( map)

To top it all off, the steel tariffs could cost the U.S. up to $2.2 billion if the government loses an appeal pending before the W.T.O. on a case brought by the European Union.

The Bush administration expresses great fealty to the principles of free trade, but its agricultural and steel policies show that trade principles get tossed out the window whenever Karl Rove comes up with a good idea like buying off steel workers and miners in Pennsylvania and West Virginia…or at least an idea that seemed good at the time.

Posted September 20, 2003 11:09 AM | Comments (44)