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Protectionism Made in the USA

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By Joseph Stiglitz

Project Syndicate
April 2002

America's imposition of tariffs on imported steel has been greeted with a howl of protest around the world. But harsh words have not been followed by a strong counter-attack. Now is the time to confront America's hypocrisy, not to bluster.


The global financial crisis of 1997/1998 - mismanaged by the IMF, largely at the direction of the US Treasury - led to an increased flow of steel imports. But that is part of the market adjustment process the US trumpets so loudly at other times.

The argument put forward by the US, that it was entitled to safeguard against a surge of imports - utilizing safeguard measures that are part of the WTO - is unlikely to past muster with a WTO panel when one is eventually convened, but the argument itself is disingenuous. Europe pushed to restructure its steel industry in the 1980s and early 1990s, and succeeded mostly. In America, many efficient new firms (mini-mills) were indeed created, but yesterday's lumbering giants stood still. They cannot compete with efficient steel mills elsewhere - including (perish the thought) Korea's state-owned steel company.

Many of America's problems are made in the USA. America's deteriorating fiscal position is leading to a strong dollar, just as the deteriorating fiscal position of the US after Reagan's irresponsible tax cut of two decades ago did. While countries may pride themselves on a strong currency, a strong dollar is bad for exports and good for imports.

In a dynamic economy, if jobs are lost in one sector, new jobs are being created in another. Government's role is to facilitate the movement of labor from one to the other. It is a primary responsibility of government to maintain full employment. Both in assisting shifts in employment and in maintaining full employment, the Bush Administration has failed.

President Bush recognized that a fiscal stimulus was needed when he arrived in office, but rather than pushing for genuine stimulus, it pushed for regressive tax changes under the name of a fiscal stimulus. Aid to old economy firms that spent more on avoiding taxes than in restructuring took the form of a repeal of the alternative minimum tax, a tax provision designed to limit the extent to which firms could make use of loopholes in the tax code.

Lowering taxes for the rich: under the Bush administration's original proposal, a family of four earning $50,000 would have received zero - yes zero - benefits over four years, while a $5 million dollar a year family of four "struggling to make ends meet" would have received a whopping $500,000! The Democrats rightly resisted; the number of jobs that would have been created was miniscule. But the weaknesses in the economy as a result of this economic mismanagement mean that those who lose their jobs will face a tougher time.

While America loses, Europe loses, many in the developing world lose, and much more is at stake. Globalization, well and equitably managed, can benefit all countries. But under globalization, as currently managed, many have not gained; and some of the poorest have lost out. Instead, globalization is an unfair game, with the rules written by rich advanced industrial countries for rich industrial countries.

But the US believes that even this is not enough: it will interpret these rules in ways which suit its political interests, bending and breaking them at will, challenging those who do not like it to do something about it. The motto of the Bush Administration seems to be, "Trade is good, but imports are bad! "

Think of the lessons that poor developing countries learn. Lowering import duties lead to a surge of imports. So, under the "new" US rules, that country is entitled to reinstate tariffs as "safeguards." If the US needs to worry about unemployment with an unemployment rate of less than 6%, what is a poor country with unemployment at 10% or 20% to say?

The US pleads for understanding; elections are coming in November, and voters in West Virginia and other states must be "bribed" to accept a new round of trade negotiations. But democracies exist across the developing world, and their voters have even more legitimate concerns about the jobs that result from liberalization. The IMF - in which the US is the only country with veto power - shows little sympathy with such political concerns in the developing world. Why the double standard?

If the increase in steel tariffs were an isolated incident it would be bad enough. But, while preaching free market doctrines abroad, the US bails out its airlines and increases agricultural subsidies at home. Even before these increases, subsidies to agriculture by the advanced industrial countries were enormous - exceeding the total incomes of sub-Saharan Africa.

The rich effectively close their markets to many goods that represent the comparative advantage of the poor. Argentina's economic position today, indeed, would be vastly different if America and Europe opened their markets to its agricultural goods. The same can be said for country after country in the developing world.

Globalization entails increasing interdependence. Given the volatility in the global economy, this entails bearing some risks. Rich countries - like the US - are in the best position to bear those risks.

Much discussion has taken place of late of the advantages to be gained by the world adopting global standards, e.g. in banking. Inevitably globalization will entail adopting such standards. America's actions over steel seem to suggest that the US embraces a double standard. This cannot be allowed. Countries, particularly in Europe, that are capable of standing up to the US must oppose it here. Taking strong measures will be in their interests, will be in America's interest (even if it is not in the interests of particular special interests, or President Bush's political interests), and will be in the broader interests of the world.


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.