November 14, 2003

George W. Bush and the WTO

Of all the distinctly odd things this Bush administration has done in the field of economic policy, perhaps the oddest is the steel tariff.

As George W. Bush's economic advisers told him two years ago, have told him many times since, and are telling him today, tariffs on steel imports provide every steel-using American industry's foreign competitors with a powerful cost advantage. The steel tariff has surely cost America more manufacturing jobs than it has saved. It's not only bad economics, it's bad mercantilism as well.

Now the World Trade Organization has said the obvious--that this tariff was a violation of our treaty obligations. Thus the Bush administration has a chance to back down, and it has a chance to save face by blaming the World Trade Organization, and Bill Clinton who got us into this WTO business, for its failure to fulfill campaign promises made to America's steelworkers.

But consider. Nobody is happy with this Bush administration's trade policy, especially not those who hoped to see moves toward freer trade that would strengthen the American economy. But isn't it very likely that Bush administration trade policy would have been even worse for America in the absence of the system of rules and obligations that is the World Trade Organization?

I'm Brad DeLong.


Nightly Business Report, for broadcast November 17, 2003.

Posted by DeLong at November 14, 2003 04:36 PM | TrackBack

Comments

Just a thought: the Bush Administration imposed the tariff with the intention of breaking the WTO just like it broke with the nuclear weapons treaties. Their attitude is that the US can't be a part of any organization where the sovereignty of the US is in any manner of speaking literally, figuratively or by imagination, threatened. So the steal tariff was just a shot across the bow. Then 9/11 comes along and they have to give up the "Powell doctrine" for the nation building. This takes a lot of time and effort since they ran against nation building in the first place. So the tariff and the destruction of the WTO (or at least the withdrawal by the US) had to take a back seat. These guys have based their entire foreign policy on a kind of macho posturing. This is the only way the steel tariff makes sense to me, because it is utter nonsense.

Posted by: Cal on November 14, 2003 05:06 PM

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I’m not sure which nuclear weapons treaty the US broke, please specify. If fact circa 1993, we signed the CBT treaty, a treaty we can’t verify because our seismic monitoring stations can't detect a weapons test below 5 kt.

On the subject of tariffs, I’m curious as to how many commodities we import are subject to tariffs? If there are others, then why does steel merit so much attention? A larger question is why we are in the steel business at all if we suffer a competitive disadvantage.

There is an easier way to create jobs—don’t destroy them in the first place. At least a half million Americans are out of work because of the H1b/L1 visa program. By sending some foreigners home we can recover a lot more jobs than we save with a tariff on steel.

Posted by: A. Zarkov on November 14, 2003 06:17 PM

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I think he means this:
http://www.cnn.com/2001/ALLPOLITICS/12/13/rec.bush.abm/
because, you know, the ABM treaty didn't protect us from 9/11, so it had to be scrapped. or something.

steel merits attention from the administration because a couple swing states contain some of the rump US industry and its workers. you wouldn't want W. to risk losing a second-straight election, would you? I doubt pretty strongly it had anything to do with a plan to withdraw from the WTO.

speaking of rhetorical questions, how exactly do you destroy a job in the first place by employing a noncitizen? wouldn't visas, rather than destroying anything, simply increase the labor force?

I, personally, can't wait to hear your no-doubt principled stand against legal immigration.

Posted by: wcw on November 14, 2003 09:22 PM

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wcw: "how exactly do you destroy a job in the first place by employing a noncitizen? wouldn't visas, rather than destroying anything, simply increase the labor force? I, personally, can't wait to hear your no-doubt principled stand against legal immigration."

Sorry, you don't know what you're talking about. "Legal immigration" does not mean that work permits are handed out instantly to all comers, as anyone knows who has either been or known an immigrant. You can argue whether there should be any controls on movement and labor at all, but that's another argument - as it is, and has been for a long time, visas are limited to protect the domestic labor force and to ensure that wages go back into the domestic economy. At least that's how I understand it; I'm sure someone here can explain better.

Anyway, about the H-1B and L-1 visa - in theory, they let an employer hire an immigrant who otherwise isn't authorized to be here, only if the immigrant provides skills not otherwise available in the labor market. In practice, the employer can finesse this by advertising the job as briefly and obscurely as possible, then saying "oh, I can't find any qualified applicants" and hiring the foreigner. Why? Because if he knows what's good for him, he won't ask for more money or complain about how he's treated, because the moment the company lets him go, there goes the visa. I know this is widespread in the software industry, where I've seen it; I don't know what other areas have been prone to H-1B/L-1 abuse.

Posted by: Eli on November 14, 2003 10:41 PM

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“. . .only if the immigrant provides skills not otherwise available in the labor market.” Actually that’s a common misconception about the H1b visa program. In reality, an employer is only required to pay a “prevailing wage.” In practice that’s no limitation at all since there are so many loopholes in the law, an employer is free to replace an American worker with a cheaper foreigner. And they have, and in large numbers—this is what I mean about “destroying” jobs. A common occurrence is for the American worker to train his replacement. If he refuses, he won’t get severance pay. By 2001 more than 890,000 H1b visas issued, and 9 out of every 10 new job openings in computer/IT went to H1b visa holders. Moreover the H1b holders are non-immigrants, they don’t get a green card, and in theory they will be sent back if they lose their jobs.

The ABM treaty is not a nuclear weapons treaty; it’s a missile defense treaty. The US was always free to develop offensive missile systems. Note this time around the Russians are largely indifferent because our ABM systems are designed to cope with a limited attack by rudimentary missiles. No really cares except North Korea and perhaps China. We are still limited to testing kinetic kill devices because the CTB and other treaties preclude us testing any nuclear-weapons based ABM system.

Posted by: A. Zarkov on November 15, 2003 02:43 AM

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Wow. Zarkov, you amaze me. Do you work in an industry greatly affected by H1B visas? I bet you do.

Posted by: Keith M Ellis on November 15, 2003 04:11 AM

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..."By 2001 [...] 9 out of every 10 new job openings in computer/IT went to H1b visa holders"...

That sounds like an awfully high ratio. If true, could that be because, by 2001, there weren't many new IT jobs being created, in total?

Posted by: andrew on November 15, 2003 04:17 AM

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Amen Brad.

How about some positive prescriptions to go with that. For instance, do what should have been done initially and have the Feds pick up some of the pension costs for the Dinosaurs. Worker re-training and research aimed at making higer quality steel in mini-mills.

Posted by: bakho on November 15, 2003 07:28 AM

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If you want more information on the H1b/L1 visa programs consult UC Professor Matloff’s at:

http://heather.cs.ucdavis.edu/itaa.real.html for a comprehensive report. Matloff has testified before Congress and various state legislatures on this issue.

Matloff’s report is somewhat long (and detailed) so you might want to skim the highlights. A shorter article by Teitelbaum discussing the over supply of scientists and engineers appears here: http://www.thepublicinterest.com/. You will need to select the Teitelbaum article called: “Do we need more scientists?” The answer of course is “no.” Like steel we have a world oversupply of capacity.

Finally consult http://www.zazona.com/ShameH1B/ for a more polemical, but nevertheless highly informative site. Zazona even has a database of H1b/L1 workers employed in the US. You can select by state, city, occupation or employer. H1b visa holders appear across the whole spectrum of occupations and professions, including public school teachers.


Posted by: A. Zarkov on November 15, 2003 10:27 AM

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******At least a half million Americans are out of work because of the H1b/L1 visa program. By sending some foreigners home we can recover a lot more jobs than we save with a tariff on steel************

Giggle. And by banning all mechanized farm equipment, I will bring about an unprecedented boom in employment and prosperity to our lands. What a maroon Zarkov is. Xenophobia or economic illiteracy - your call. Nothing can destroy a 140,000,000 labor force quite like 800,000 talented, skilled workers. This does, however, explain Zarkov's famous Guantanomo Bay comment made a few weeks ago quite well.

Posted by: strawman on November 15, 2003 04:56 PM

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Well strawman I see that you regard foreign workers as a kind farm machinery. And that’s one of the problems with the H1b visa program; it essentially makes high tech workers into a commodity. The eventual result will be very few Americans will elect engineering, computer science, physics etc as a career. In fact this is already happening. The Xenophobia canard won’t fly either. Foreign high tech workers with green cards are among the most vociferous critics of the H1b problem because they too see their jobs disappearing and their salaries dropping. The big supporters of the H1b program are the tech company CEOs who want cheap and docile labor—is that you?

Posted by: A. Zarkov on November 15, 2003 06:33 PM

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************
Foreign high tech workers with green cards are among the most vociferous critics of the H1b problem because they too see their jobs disappearing and their salaries dropping.********

And people who bought cheap houses near airports are the ones who complain loudest about airplane noise. That doesn't mean that air travel is bad.

So Zarkov, do tell us again how a couple of hundred thousand workers, many of whom are highly educated professionals are driving a labor force of over a hundred million into poverty and destitution. What economic framework can help us understand such dastardly deeds.

You have been so illuminating already - I mean that site you sent us to that was, like, so deep. I know now that my kid's decision not to be a nuclear physicist was because he must have read about all those evil Russian/Chinese/Indian H1B physicists coming to our country. If we got rid of those bastards I know he will drop his shop class for quantum mechanics.

Keep on Zarkov, you patriotism glistens just as brightly as the day you said that only the guilty would object to being tried in a secret military trial instead of trial by a jury of their peers.

Posted by: strawman on November 15, 2003 07:50 PM

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The steel case might be interesting for several reasons. The dependent clause of Zarkov's question "why we are in the steel business at all if we suffer a competitive disadvantage?" is at the heart of deeper questions about how various nations are approaching international trade, and how the WTO is actually functioning as a referee.
The U.S. has massive and inexpensive supplies of both Iron ore and coal, a state of the art transportation system, an underserved internal market, technologically competitive steelmaking facilities, and lower labor wages relative to Japan and Europe. Steel is very heavy and expensive to transport long distances. Internal steel prices in both Japan and Europe are higher than in the US. The facts of the case do not support the theory that steelmaking in the US would be at a competitive disadvantage, if trade rather than political advantage were the basis of competition. Yet somehow, US steelmakers find exports to higher priced markets in Europe and Japan inadequately accessable (for the last thirty years or so), while simultaneously European and Japanese steelmakers enjoy higher sales prices in their domestic markets, selling steel below US producer prices in the US market, an effective method of subsidy.
Such a situation indicates that US steelmakers may be at a political rather than competitive disadvantage (to which the three judges of the WTO paid less than strict attention). The argument that economists use in response to subsidized imports, that responding to such situations by accepting the subsidized imports and allowing consumers to reap the profit from the foreign subsidy yields a greater overall advantage than the disadvantage suffered by the domestic producers, does not at all speak to the original question of whether US producers are actually at a "competitive rather than political" disadvantage. Rather it begs that question.
In such a situation the microeconomic disadvantage is in fact political rather than economic, and when economics speaks mathematically to the theoretic superiority of an exclusively macroeconomic advantage it also does so only by ignoring the specificity of the particular business situation, as well as potential long term strategic effects in such areas as Porter industrial clustering synergies, which may not in every case be appropriate. This kind of specifity limit is both the strength and weakness of macroeconomic abstraction.
The specific question of steel as a "fundamental" industrial and military commodity may go to competitive industrial and military case analysis rather than economics per se (a thought which may be anathma to economists who see international peace as a given and "national" competition as an anacronism) but the validity or pathology of such topics may be questions which reach past the limits of econometrics and require interdisiplinary efforts to fully illuminate.
The game theory aspects, in which can perhaps be treated the longer term economic effects of strategic use of trade (i.e. the microeconomic and industrial cluster afteraffects of politically forced deindustrialization which can be implemented by focused subsidy attacks in which defensive measures are disallowed) may or may not shed adequate light on the full range of business, economic, or military consequences of these international interactions.
It is perhaps not less conservative, given some of these considerations, to maintain some ability for defense of certain industries given a somewhat clear history of such tactical maneuvers resulting in past deindustrialization effects, than to abandon industrial change entirely to macroeconomic theory given its limitations of specificity.

Posted by: BC on November 15, 2003 10:34 PM

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BC, the U.S. steel industry also faces the problem of capital and supply cost subsidies in its competition from Korea, Brazil, Russia and China at a minimum. On the policy side, it would have been much cheaper to simply buy the steel industry's pension liabilities, but political support for that type of action would have been very unlikely. Nonetheless, we hose industries all of the time why should the steel industry be different? Swing state votes. Of course the Administration has to hope all of the people who've lost jobs don't figure out who to blame. There is a good chance they won't.

strawman, despite the very real benefits to the U.S. economy from immigrant knowledge workers there are very real wage slavery leverage problems in the design of H1B visas. The land of the free shouldn't be handing out these type of limited entries. Make them greencards or don't hand them out.

Posted by: Stan on November 16, 2003 02:24 AM

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BC,

Cheap steel - and for that matter, cheap IT workers - subsidises the rest of the US economy.

If Japanese banks are willing to die in a ditch for the profit margins of International Harvester, then I guess thats something the US should deal with.

The real problem for the steel industry is cheap mini-mills and specialty steels. That and their pensions, of course.

Posted by: Ian Whitchurch on November 16, 2003 06:30 AM

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BC- Where do you get that "Internal steel prices in both Japan and Europe are higher than in the US."???

Do you know what happened to the price of steel in the US after tariffs were imposed? Some steel parts can now be imported for less than the cost of the steel.

Yes the mini mills are competitive but the dinosaurs are not. The playing field is not level because other countries provide their citizens with a basic level of health care that the US leaves up to employers to provide are lets the workers do without. We can't even have a political discussion about this issue without the GOP going ape about socialized medicine.

Posted by: bakho on November 17, 2003 01:08 PM

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There are no weird people - some just require more understanding.

Posted by: Becker Michelle on December 10, 2003 09:27 PM

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To be poor without bitterness is easy; to be rich without arrogance is hard.

Posted by: Meehan Keely on January 10, 2004 01:38 AM

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