Bush’s steel tariffs in 2002 didn’t crush the economy— but they certainly didn't help
George W. Bush said in 2002 that steel tariffs he had imposed had done their job, giving the industry the “breathing space” it needed to restructure. In private, advisers were much more negative.
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WASHINGTON—In 2002, with congressional midterm elections coming up, George W. Bush imposed steel tariffs kind of like the ones Donald Trump says he will impose in advance of this year’s mid-terms.
They weren’t an economic catastrophe. But they didn’t work especially well, economically or politically.
After blowback from U.S. businesses, retaliation threats from Europe and a World Trade Organization ruling deeming the tariffs illegal, Bush cancelled the tariffs after just 21 months.
He said they had done their job, giving the industry the “breathing space” it needed to restructure. In private, advisers were much more negative.
“Key administration officials,” the Washington Post reported, “have concluded that Bush’s order has turned into a debacle.”
Bush’s tariffs were much narrower than the ones Trump says are coming.
Trump said Thursday that he would impose a 25 per cent tariff on steel, 10 per cent on aluminum. He told industry executives that he did not plan to exempt any country.
Bush, conversely, exempted Canada, Mexico, Jordan, Israel and more than 75 developing countries. He did not put tariffs on aluminum. He imposed different tariff levels on different steel products, and they decreased over time. The tariff on “flat” steel products was planned to drop from 30 per cent down to 24 per cent and then 18 per cent.
And Bush imposed the tariffs in a traditional manner that forced countries to get WTO permission to retaliate. Because Trump plans to impose his tariffs under an obscure “national security” exemption, retaliation might happen immediately this time.
Analysts have a difficult time pinpointing the impact of tariffs, since other factors affect the economy at the same time. But by most accounts, the short-lived Bush tariffs did not have a massive overall impact. A 2003 study by the U.S. International Trade Commission found that losses created by the tariffs exceeded the tariff revenue by $30 million (U.S.) annually, a paltry amount.
A study funded by steel producers that supported the tariffs found that the tariffs brought back 16,000 steel jobs. A study funded by steel-consuming companies that opposed the tariff found that rising prices caused 200,000 job losses, concentrated in the metal manufacturing, machinery and transportation equipment sectors, though it noted that it was not clear how much of the price increases were caused by he tariffs.
Gary Hufbauer, a trade expert at the Peterson Institute for International Economics who opposed the tariffs, said then that both figures were exaggerated. In 2003, he estimated losses in steel-consuming industries at a maximum of 43,000 jobs.
Looking at the economy as a whole, Hufbauer said Friday, “the magnitude of the use of steel in the country and the magnitude of the kind of retaliation is just too small to count very much.” He said he would not expect significant widespread price increases even with Trump’s broader tariffs: “It creates more an inflationary mood,” he said, “but in direct inflationary effect, it’s just very, very small.”
The biggest political challenge for Bush was the fury of the steel-consuming companies that were confronted with price hikes. The increases varied, but they exceeded 30 per cent for some steel products. The Wall Street Journal reported in September 2002: “The U.S. price for hot-rolled steel, a basic item that bears a 30 per cent tariff, has jumped to around $350 a ton from $210 late last year.”
The chief executive of one auto parts manufacturer, who said the tariffs had cost his company $200,000 per month, told the Journal he wrote the Republican Party an angry note instead of the campaign donation the party had requested: “I don’t have any money to contribute because of the exorbitant cost of steel as a result of the Bush tariffs.”
Furious lobbying from such firms and from countries led Bush to create a series of additional exemptions after he announced the tariffs. Australia won a belated exemption for about 85 per cent of its exports. By six months after Bush’s announcement, the Journal reported, “about 25 per cent of the 13 million tons of imports originally hit by the duties now are exempt.”
The price increases did make it economical for some steel producers to revive shuttered mills, the Journal reported, though some of the firms kept losing money. The Alliance for American Manufacturing, which supports Trump’s tariffs, says Bush’s tariffs “gave the domestic steel industry room to stabilize, restructure, and consolidate — reducing production costs and increasing productivity without negatively affecting the economy at large.”
Critics respond that the industry obviously remained troubled afterward.
“It gave a little temporary relief, not very much, for not much time. I don’t think it was the salvation,” Hufbauer said.