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Big Mistake
A reversal of policy needed on steel.


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Deroy Murdock

President Bush’s raw-materials tax has become a monument to the magic of unintended consequences. His March 5 decision to hike imported steel tariffs between 8 and 30 percent drew cheers from steel workers in Ohio, Pennsylvania, and West Virginia. But thousands more from coast to coast jeer Bush’s protectionism. The president should toss his steel taxes into the nearest junkyard.

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”It’s very serious here in the port of New Orleans,” laments James Campbell, president of International Longshoremen’s Association, Local 3000. “We are off about 40 percent on steel,” since March 5, Campbell estimates. “I would say about a third of our longshoremen have joined the unemployment rolls since the tariffs were imposed.”

Big Easy stevedores face a double whammy: High tariffs scare off freighters from which they normally unload 42 percent of U.S. steel imports. Once emptied, those same boats usually haul away 62 percent of U.S. grain exports. With fewer ships available to be loaded, grain overflows from silos and sits in storage on barges.

Exporters can deliver wheat, corn, and soybeans. But since chartered vessels reach the Mississippi delta empty, traders have to subsidize these one-way carriers and their vacant cargo holds. “I’m told shipping prices to carry grain on a priority basis have gone up 25 to 33 percent,” says Gary LeGrange, CEO of the Port of New Orleans.

Barges still traverse the Mississippi River, but in smaller numbers. “In February, before the tariff decision, we did 68 barge loads of steel,” explains David Schulingkamp, President of MBLX, a New Orleans-based river cargo carrier. “In March, we did 20 barges. In April, we did 24 barges,” he adds. “I would say virtually all of the reduction is attributable to the tariff increases.”

Steel-import taxes soared just as U.S. manufacturers accelerated their output within a rebounding economy. In fact, according to the latest federal data, steel imports plunged 13.7 percent from March to April. Meanwhile, factory output — much of which requires steel — grew 0.3 percent in April, its fourth consecutive monthly advance. Reducing steel supplies amid escalating demand lifts prices. America’s first MBA president should have anticipated this.

Steel buyers, consequently, face shortages and sticker shock. “There’s panic buying out there,” says Janet Kopenhaver, Executive Director of the Consuming Industries Trade Action Coalition, a steel purchasers’ group. “We hear anecdotally about 50 percent price increases. We are hearing of up to 20-week lead times for steel deliveries that would have taken four to six weeks before the tariff hikes.”

The agony has spread to both coasts.

“We’re paying 20 percent more for steel than we did when we had foreign suppliers,” complains John Norton, president of All American Manufacturing, a Los Angeles plumbing-specialties producer. “And that’s only the half of it. My customers tell me, ‘You can’t raise your prices. I have found sources that cost me less than you do.’” Foreign manufacturers buy steel at lower, world prices, then ship finished goods to America free of Bush’s steel tariffs. Norton says a graph of his new orders would show a 45-degree decline. Thus, “we have had to cut our payroll by 20 percent. All this has done is remove jobs from the American workplace and place them overseas.”

“Material due for delivery this quarter is now 35 percent to 40 percent higher than it was in the 1st quarter of the year,” Robert Berish, President of Qual-Craft Industries in Stoughton, Massachusetts wrote U.S. House Small Business Committee Chairman Don Manzullo (R, Ill.). “Unless things change rapidly,” Berish’s June 5 letter added, “I will be forced to shift more of my production to China with the resulting reduction in our production staff.”

George W. Bush’s cold-rolled capitulation is his presidency’s biggest error. It is openly political, nakedly statist and far left of Bill Clinton who ignored the steel industry’s protectionist demands. Bush should acknowledge and reverse his mistake.

Ideally, Bush should eliminate steel barriers and urge America’s economic partners to follow him back to the free-trade path. Otherwise, he should offer tax relief or public assistance to steel workers who lose jobs to foreign competition. That’s still too much government, but even that would brighten the scrap heap President Bush has erected.



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