The Politics of Trade
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PAUL SOLMAN: Every 15 minutes, at Nucor’s Field Charleston, South Carolina, plant, there’s an explosion triggered by a graphite electrode literally hot as the sun, which has just blasted enough electricity to melt what you’re seeing– a three-ton mix of recycled cars, crushed appliances, and iron ore.
Nucor it calls itself America’s biggest recycler. And here’s the next stage of the process.
SPOKESMAN: Your hot metal is going through your FD end, which we call the tube, into the mold which forms into shells.
PAUL SOLMAN: After the melt is molded, it’s rolled thinner and thinner, denser and denser, stronger and stronger.
One of the few bright stars of the U.S. steel industry, dazzlingly profitable since the start of the ’60s, Nucor has never supported tariffs to protect its business until now.
In Charlotte, North Carolina, the most low-key of surroundings, the modest corporate headquarters of firm number 391 on the Fortune 500 is Nucor steel. There, Nucor’s equally no-nonsense CEO, Dan DiMicco, argued that he now supports protective tariffs because low cost imports are killing the industry.
DAN DiMICCO, Nucor Steel: The problem was, things got to such an extreme with the flood of imports and the destruction of the pricing in the marketplace that we had no choice but to get involved. But it got to be such an extreme, where you had something like 32 companies in this country, the entire industry, virtually, in bankruptcy.
PAUL SOLMAN: In March, the pro-market Bush administration surprised many supporters by zapping a 30 percent tariff on foreign steel to protect the U.S. steel industry.
Europe threatened to retaliate with tariffs against us; Japan and China made threats as well. In short, world governments which talked free trade were practicing protectionism.
Meanwhile back in the inferno, that’s noted trade expert, former Clinton economist, and my traveling companion, Robert Lawrence, who is worried that the U.S. tariff hikes plus Europe threats of counter tariffs could trigger a trade war.
ROBERT LAWRENCE: What I really worry about is that our government, the United States and Europe, are going to get very caught up in fighting individual battles, in retaliating, and in fact engaged in a tit-for-tat confrontation, which could escalate over time.
PAUL SOLMAN: Nucor’s CEO, however, isn’t worried at all.
DAN DiMICCO: This is not a matter of tit- for-tat. We’ve already been tatted… ( laughs ) in a big way. I don’t know how better I can put that and maintain a sense of humor, okay.
PAUL SOLMAN: What economists like Lawrence worry about, besides getting singed by molten steel, is that the inevitably political nature of trade disputes, like this one, can easily get out of hand.
The U.S. protected its steel industry, it seems, because of politics. Steel is concentrated in states that could go either way in the next election– Pennsylvania, West Virginia, and the Carolinas.
But then Europe threatened to retaliate politically by raising tariffs to punish products from undecided states like Wisconsin– Harley Davidson; Florida– citrus; to the Carolinas– textiles– to put political counter-pressure on the Republicans.
Yet the economic goal, which both the U.S. and Europe agree on, is to lower tariffs through rules regulated by the World Trade Organization.
And if you raise tariffs against imports in one industry, you’re expected to compensate your trading partners by lowering import tariffs in another industry.
After World War II, tariffs averaged a hefty 40 percent on manufactured goods. Over the decades, they’ve been brought down to today’s 4 percent or so, while the U.S., Europe, and Japan have prospered. Economists think that’s because low tariffs spur economic growth.
ROBERT LAWRENCE: The United States has never been more open as an economy, and the United States has never been more prosperous.
We don’t try to make everything ourselves. We buy from the rest of the world and we sell to the rest of the world. Sure, some competition is not perfectly fair, and we do need rules of the game in order to deal with unfair competition. But by and large, I think it would be extremely foolish for us to think we could withdraw and retreat back into a fortress America.
PAUL SOLMAN: And what’s true of America, economists argue, is true of all countries. That’s why there’s a World Trade Organization, the WTO, to create and police the rules of the game, and to counter the inevitable political pressure to start raising tariffs again, because while global competition benefits consumers, who pay lower prices, and low-cost producers, high-cost producers get hurt, as do their workers.
Take the U.S. textile industry which has been losing jobs to foreign trade for years.
JOCK NASH, Milliken & Company: In the year 2001, 146,000 textile workers and apparel workers lost their jobs.
In fact in our industry, we lost more jobs in 20 months than exist in the steel industry.
PAUL SOLMAN: Staunch conservative Jock Nash — the Milliken textile company’s D.C. lobbyist — speaks on behalf of many in his industry, and plenty of others in America, in opposing open trade and globalization altogether.
JOCK NASH: If you want to protect what we have here, then you’re going to have to tell anybody that wants to sell here: To make it here, exist under those laws. The only level playing field that exists. And that’s how it works.
It doesn’t work by… by seeking out the lowest wage labor or countries that can exploit their people and their environment for their own corporate advantage. That’s not the way it’s going to work.
PAUL SOLMAN: It’s hard not to feel for free-trade losers.
In South Carolina live hard- working Americans whose livelihoods are threatened by foreign imports. Milliken’s half million square- foot Cedar Hill plant employs more than 500 in state-secure dust-free textile jobs. And while the line jobs are supposedly unskilled, they pay a living wage for South Carolina, some $30,000 a year, for expertise that workers couldn’t quickly sell elsewhere.
RAYMOND HOOD, Textile Worker: You go through about a 12- week training program, and then you need probably nine to ten months of practical experience on the machine before you get really competent and actually know what you’re doing with the machine to be able to make it perform correctly.
PAUL SOLMAN: How long would it take me, someone with not a whole lot of mechanical aptitude, to learn to run one of these machines?
WORKER: You may retire first. ( Laughter )
PAUL SOLMAN: Technologically, Milliken, like Nucor steel, is about as state-of-the-art as a global manufacturer can get. This is a robot, for instance, that takes and stores bolts of cloth all by itself.
But Milliken says it can’t compete if foreigners sell too cheap, so it wants protective tariffs.
But protection would be self-defeating, says professor Lawrence.
ROBERT LAWRENCE: We have become extremely intertwined into the global economy.
PAUL SOLMAN: The proof is the machinery from Europe inside this very plant.
ROBERT LAWRENCE: So even this factory, which is producing heavily to the local market, is dependent on imported machinery in order to be a world-class competitor.
PAUL SOLMAN: Moreover, says Lawrence, what about the damage to South Carolinians if Europe retaliates with textile tariffs? What do the people he calls "globalphobes" have to say about that?
JOCK NASH: Okay, you know what I’d tell Europe?
"Let’s roll." You know, right now you’ve got a bunch of guys in the street just bumping their chest together. If Europe wants to retaliate against us, tell them to go ahead.
I double-dog dare them.
PAUL SOLMAN: Lawrence’s response?
ROBERT LAWRENCE: And I think already we’ve seen that that escalation is proceeding. And I worry that it could get much more destructive.
PAUL SOLMAN: Ticked off by the U.S. tariffs on foreign steel.
But let’s be clear, the administration’s so-called "safeguard action" is temporary, meant to give the industry time to restructure. And it’s arguably legal under the WTO if our steel industry problems are caused by imports. DiMicco insists they are. Lawrence says the evidence isn’t clear, and the real culprit may be the recent recession.
ROBERT LAWRENCE: Now the Europeans are claiming that, in fact, the United States has not seen an increase in the volume of imports during the relevant period.
DAN DiMICCO: That’s not true, because the relevant period is not delegated to six months or 12 months. The relevant period here is five years. And during that five-year period there certainly has, and the overhang of the marketplace can be easily demonstrated even though the flow has been cut back.
PAUL SOLMAN: Now there followed a very thorough debate that became very technical and legalistic very quickly.
But that’s what the WTO is for. The point is, though, no one’s arguing this case in Geneva. The U.S. has its interpretation of import damage.
And Europe has responded by making a list of vulnerable American political targets before arguing its case.
PASCAL LAMY, European Union Trade Commissioner: Why do we have in lists of this kind to address sensitive product? Because this is where the political leverage is.
PAUL SOLMAN: Pascal Lamy negotiates for Europe. And he’s sheepish about what’s been happening.
PASCAL LAMY: Compensation would probably be more clever, or the right for me to ask you to lower a number of your obstacles to trade would probably be more intelligent than the right for me to erect obstacles to trade.
PAUL SOLMAN: Yet obstacles is what we’re getting.
And while Europe has put off its retaliation deadline, and has already removed Harley Davidson from its list, even threats make targeted U.S. firms less attractive to investors; less willing to so much as to explain their position as firms in one industry after another, including Harley Davidson, apologetically told us in turning down our interview requests.
The U.S. has also backed off some — granting steel tariff exclusions to many types of foreign steel to compete with what we make here.
The question is, though, will free trade survive the new tactic of explicitly political escalation: Where we protect our steel and key states, they go after industries like the textiles in the same state for the same reason.
PASCAL LAMY: The benefits of trade devaluation are widely spread to numerous constituencies who doesn’t don’t even know they have a benefit.
The costs of trade opening is concentrated on a few constituencies who have to restructure to adapt. So, this is the basic reason why the politics of trade are always difficult.
PAUL SOLMAN: Unless, of course, they realize what a bargain imports are.
We left the South then, and Nucor’s final product– rolled steel to be used in truck frames, refrigerators, oil pipelines– with the thought that both America and Europe may have a case, but that instead of arguing it in court, they they’ve been titting and tatting, and threatening to ignite a trade war in the process.