Protection Rising

...In this year's State of the Union Address, he sounded like Adam Smith: "Good jobs depend on expanding trade," But when he went ahead in March and ordered higher import taxes and more quota restrictions on imported steel, he embraced what can only be called a "mercantilist" policy, to protect favored producers at the expense of the rest of the country...

...Mexico, ironically, which was excluded from the tariff increases, is considering taking advantage of them by raising its own tariffs on steel...

...The higher price of steel will reduce demand for automobiles, machinery and appliances...

...However, the real problem is not competition with Europe and Japan, but harmful government policies right here at home...

...and may impose an outright ban...

...It won't be long before cattle ranchers, makers of textiles, footwear, semiconductors and heavens knows who else, all line up with flags waving, asking the president to do his patriotic duty and raise taxes again to protect their vital national industries...

...Smith understood that when government imposes import quotas and selective tariffs to protect favored producers, the interest of consumers is doubly sacrificed—they pay both a higher price for imports, and higher prices for domestic products made with the affected goods...

...Why did it come...

...Russia has stopped issuing import licenses for chicken imports from the U.S...

...But by invoking his authority under Section 201 of the Trade Act of 1974, President Bush has just raised taxes unilaterally, without so much as a single vote by Congress...

...Protectionism in any form corrupts and politicizes free enterprise, short-circuits the ability of markets to adjust to changing circumstances and limits their ability to maximize people's wealth and prosperity.Trying to strike a balance between the interests of consumers and politically favored producers is like trying to get a little bit pregnant or go only halfway down a slippery slope...

...The Financial Times reports that already one of the architects of the steel decision, Under Secretary of Commerce for International Trade Grant Aldonas, "has warned that strains in international trade relations could spread from steel to other sectors," including agriculture and semiconductors...

...The administration got itself into this fix last June, when President Bush directed the U.S...

...Was it to crush us, or to conquer us, or to starve us, or was it to nourish and enrich our country...

...in pursuit of this simple plan there came last year into [our country] from every land and people under the skin, millions worth of merchandise, so marvelously varied in its character that a whole volume would scarcely describe it...

...Little is more frightening to a politician than to be accused of "doing nothing" while cheap foreign imports undermine America's industry, bankrupting great companies and throwing hard-working Americans out ofjobs...

...each will only ask him to snip a bit off the ear lobes of a few million American consumers or perhaps lop off a finger or toe here and there among American workers...

...These folks won't be so presumptuous as to ask the president to cut any babies in half...

...But no amount of clever spin can disguise the reality: that protectionism is neither economically right nor morally just, because it punishes the vast majority of innocent American producers (of things other than steel) and consumers...

...As every new generation of politicians seems to learn the hard way, protectionism shrinks national output more than it increases business in the protected industry...

...tariff hike on steel...

...Yes, at current steel prices many American steel companies cannot compete in global markets, and steelworker jobs are at risk...

...Tax and regulatory reform would allow workers to live better lives with more income after taxes...

...and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer...

...We free-traders say it is not true...

...Economists estimate that the Bush administration's latest actions will increase the cost of the steel components of products somewhere between 6 and 8 percent...

...From The Wealth of Nations back to 14 THE AMERICAN SPECTATOR • MARCH/APRIL 2002 a crabbed industrial mercantilism in less than 60 days—quite a feat...

...It is a sober fact that every single time...

...it costs more American jobs in related industries than it saves in the protected industry...

...There's nothing "Solomonic" about that...

...But that's not the full extent of the damage...

...Before he did, he should have gone back and read Winston Churchill...

...the true mother would give up the baby if necessary to save its life...

...With all due respect to the president, he and many of his supporters are drawing the wrong lesson from the celebrated story of how King Solomon settled a dispute between two women claiming to be a child's mother, by proposing to cut the baby in half...

...By one estimate, as many as eight jobs will be lost in companies manufacturing and selling steel products for every steelworker's job saved...

...with some problems, "compromise" can be the worst of all possible alternatives...

...The president justified his order on the grounds that the declining fortunes of big, old-fashioned, integrated steel producers raise considerations of "national security...

...Just months before he crossed the floor of the House of Commons to the Liberal side, he gave an impassioned speech ridiculing the growing protectionist sentiment in the Tory party: "It is the theory of the protectionist that imports are evil...

...Protectionism is always tempting to political leaders left and right, especially when the special-interest lobby in question comprises both large corporations and labor unions...

...The real enemy of steelworkers in the United States is not foreign companies but stupid monetary, tax and regulatory policies in Washington, D. C. The 30-percent decline in steel prices since 1996, which has distressed many American steel producers, was the direct result of deflationary monetary policy by the Greenspan Fed...

...Solomon's insight was that the pretender would be happy to see the baby dead rather than in her rival's arms...

...The fear is that the White House could go down this same road yet again...

...Yet that is what President Bush has attempted to do...

...But a toe here and a finger there, and pretty soon you're talking about real carnage...

...trade representative to request an Inter-national Trade Commission investigation into the "injury" from foreign producers' allegedly "dumping" steel on American markets...

...It won't hurt much, and it's for a good cause, after all...

...In February, believing that global warming may pose a "significant threat" to the planet but lacking convincing scientific evidence, he rejected the Kyoto Treaty's mandatory reductions in carbon emissions and chose instead to establish a "voluntary" cap-and-trade pro-gram for gradually reducing car-bon dioxide emissions...

...The latest moves are being sold as "fair trade": a justifiable reaction to "unfair" practices by our trading partners...

...A similar move late last year against imports of cheap Canadian lumber is having the same effect on the cost of homebuilding, one of the most vibrant sectors of our economy...

...Earlier this month, when his commitment to free trade collided with the Republican Party's desire to capture steelworkers' votes in a few key districts, he tried to get "a little bit protectionist," increasing import taxes up to 30 percent on certain types of steel but refusing to bail out steel companies by paying their "legacy" pension and retirement-plan costs...

...Neither does "strategic protectionism" make sense as a negotiation strategy, because it is much more likely to set off trade war with our key economic partners...

...It ultimately loses more votes than it garners, because it adversely affects so many more people than it benefits...

...It is a long-standing precept of Anglo-American political economy that it is wrong to take property forcibly from innocent people without their consent or with-out providing them just compensation...

...When you read his words, there is no doubt that for Churchill this was not just an economic argument—it was a matter of fundamental freedom: We say that every [citizen] shall have the right to buy whatever he wants, wherever he chooses, at his own good pleasure, without restriction or discouragement from the state...

...Take trade policy as one example...

...Adam Smith comes to mind again, with his warning about producers claiming that every tariff they seek is a "patriotic duty...

...MARCH/APRIL 2002 • THE AMERICAN SPECTATOR 15...

...The Bush political shop is also attempting to justify this new surge of protectionism as a sophisticated long-run strategy to achieve free trade—a bargaining lever...

...European Parlimentarians say they will use "all means at their disposal" to respond, and Japan says it is considering every option available to counter the U.S...

...No doubt, the legal beagles can quote any number of Supreme Court cases to square this action with the courts' expansive interpretation of the Constitution, which on a plain reading grants the power to tax exclusively to Congress...

...however inconsiderable, all that vast catalogue of commodities came to our shores because some [citizen] desired it, paid for it, and meant to turn it to his comfort or profit...

...According to a study published by the Institute for International Economics, the administration's tax hike on imported steel will cost domestic steel users and foreign steel companies $25.5 billion over four years—$500,000 for every steelworker's job that might be saved...

...But that doesn't "prove" that unilateral presidential tax increases are right or just, only that the Constitution has been judicially disfigured yet again to the point of being unrecognizable...

...To think that you can make a man richer by putting on a tax is like a man thinking that he can stand in a bucket and lift himself up by the handle...

...Earlier this month, President George W. Bush exercised extraordinary, ill-conceived and dubious presidential authority under Section 201 of the Trade Act of 1974 to raise taxes on imported steel, on the grounds that steel imports were hurting American steelworkers and steel companies...

...As the story of Solomon illustrates, some things simply cannot be split in half without destroying them...

...Moreover, if we would reform the tax code to expense investment in plant, machinery and technology, cut tax rates on labor and capital to increase workers' disposable after-tax income, and ease up on radical environmental regulations, all American business-es would have a better chance to competewith foreign rivals who enjoy a friendlier tax and regulatory environment and face lower labor costs...

...The reason President Bush let his political advisers talk him into raising import taxes on steel over the objection of his economic advisers is that Bush has a habit of settling difficult and contentious issues by splitting the difference: • As a candidate, when he perceived a conflict between cutting tax rates and fiscal responsibility, he elected to cut tax rates slightly and phase the reductions in gradually over 10 years...

...That was his justly celebrated Wisdom—not the grisly compromise...

...PROTECTIONISM MSIN BY THE EDITORS As our good friend Jack Kemp is fond of pointing out, Winston Churchill was so committed to the idea of free trade that in 1904 he chose to abandon his party rather than abandon that principle...

...By protecting American steel makers, the administration is ignoring one of Adam Smith's most important lessons: "Consumption is the sole end and purpose of all production...

...Nothing gets the juices flowing faster—especially with a war on—than to have Big Steel wrap itself in the flag and appeal for help...