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“Those who cannot remember the past are condemned to repeat it.” In 2002, the 43rd President of the United States, George W. Bush declared tariffs on imported steel for a three year period, placing a tax of up to 30% on those goods. At the end, the policy lasted only 18 months and brought a number of issues with it which could be repeated very soon.
United States just like 163 other countries is a member of WTO and according to their website, this is their stance on anti-dumping practices and implementation of tariffs to combat those: “The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (“material”) injury to the competing domestic industry”. This was not the case in 2002 with imports falling compared to the previous year. The end result was the biggest fine to a member nation: 2 billion USD.
Studies measuring the impact of this policy showed that while 3,500 jobs were created in steel industry, costs per one were almost half a million dollars and at the end those new jobs were overshadowed by 200,000 lost jobs for the country. Final estimates of welfare lost due to this policy are at just over 40 million USD.
Just as any budding economist in current times would’ve figured out, number of U.S. trading partners retaliated with similar tariffs. The responses were more sophisticated and thought out than just a commodity tariff. E.U. responded by preparing for a trade war. There was no intention of retaliating in the same fashion, but to deter Bush via politics. Rather than target him directly, E.U. targeted swing states’ key exports to Europe, hoping to reduce Bush’s popularity there, pressuring him into cancelling the tax to ensure reelection. Those included citrus products, Harley-Davidson motorbikes, textiles, and ammunition.
At the end of this all, President Bush withdrew his tariffs on 4th of December 2003, days before E.U. retaliation would take place. Once the dust settled, some jobs were created at excessive costs, a lot more were lost and trade war almost occurred between U.S. and the rest of the world.
Now, if we change the year from 2002 to 2018, 43rd president to 45th, and steel to steel plus aluminium we arrive at the current situation, where U.S., Europe, China, and others are struggling with the same problem again. Current U.S. president is trying to carry out implementation of similar tariffs to those earlier in the century. While there is some scrutiny and supposedly inflated figures, nonetheless it appears as none of the lessons from the past were learned.
The administration 16 years ago wasn’t sure of the severity of the damages that could have happened. While no-one could have predicted the full extent of the costs incurred in 2002, in the second round of this skirmish, Trump has all the previous data and forecasts available to judge the probable effects. And those are in line with the past, Routers survey among economists showed the same attitude, with majority believing that once again, there will be a net loss to this policy. The Trading Partnership, a consulting firm forecasted the possible employment effects of this tariff and estimated that they will create just under 33.5 thousand jobs in the steel and aluminium sector (with news of steel mills reopening their blast furnaces) but will strip almost 180 thousand throughout all sectors in the US economy.
Unsurprisingly, E.U. response was identical to that during Bush administration – targeted tariffs on swing states to worsen Trump’s and his closest allies’ political position(on items such as bourbon, and Harley-Davidson again). Domestically, manufacturers are preparing too, attempting to gain exception from the tariffs on steel and aluminium they import.
The world is coming a full circle now and those mistakes will be repeated as Trump’s deadline for nations’ exemptions is nearing. Boosting competitiveness of a nation to compete with imports in such manner was already proved to be ineffective, hopefully this will be a short-lived attempt to disrupt the global economy.