President Bush's decision to impose tariffs of up to 30 percent on most imported steel may help the embattled, but it likely will result in higher consumer prices for certain manufactured goods.
Displaced steelworkers hope the tariffs will stimulate domestic steel production, thus putting them back to work. Yet critics say the tariffs stand to boost auto, appliance and home costs. One critical study portends that a family of four will spend up to $283 more a year.
In announcing these tariffs, the Bush administration walks a tightrope politically and economically.
On the one hand, the tariffs should play well in the "rust belt," an area of the country that could swing control of the House in 2002 and the presidency in 2004.
But the announcement of the tariffs triggered a chilly international response. The European Union cautioned that relations with the United States will suffer under such a tariff decision and hinted at possible trade retaliation against American products. Nations hit hardest by the tariffs include China, Japan, South Korea, Ukraine and Russia, some of the same nations America needs as allies in its ongoing fight against terrorism.
Union officials have applauded the move but had pushed Bush for even higher tariffs, some recommending 40 percent.
While this temporary move may help even the playing field for certain steel producers and give them more time to consolidate and restructure, critics say the financial problems within the steel industry have more to do with oversupply than protectionism or world economic order. Oversupply forces down the price of steel and causes economic hardship for the domestic steel industry. It remains to be seen whether greater protectionism will change the industry's long-term economic outlook.
One thing is certain, the domestic steel industry must retool to remain a player in the international steel market. Labor-friendly "integrated" mills have lost significant ground to so-called "mini-mills," which make steel from scrap and can operate at a third the cost of old-line mills. Geneva Steel, based in Vineyard, Utah County, hopes the tariff structure will improve its borrowing options. Geneva hopes to purchase an $80 million electric arc furnace to enable it to convert to a mini-mill.
These tariffs should enable U.S. steelmakers to turn around their struggling operations on the short-term. But over the long-term, the United State's commitment to free trade may require that smaller companies fighting for their share of the market may need to consolidate to survive in a global economy. That scenario already has played out in several other segments of the U.S. economy.