Trump’s high tariff

Laissez-faire had the best of supporters from economists from America but the worst perpetrators of its eclipse are also America. President Donald Trump is proposing to impose 25 per cent tariff on steel imports and 10 per cent on aluminium. George W Bush also did the same high protection in 2002 by raising the duty on imported steel from 0-1 per cent to 8-30 per cent. Bush declared, “I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods.”

This statement has been found to be completely wrong. Not only was the international reaction extremely negative, but research also shows that the tariffs were adversely affected the US GDP and employment. The high tariff started on March 5, 2002, and lifted on December 4, 2003, before the target time of December 2005. Retaliatory tariff were also imposed by the European Union and other countries leading to a trade war. A case was filed at the World Trade Organisation (WTO). On November 11, 2003, the WTO came out against the steel tariffs, saying they had not been imposed during a period of import surge—steel imports had actually dropped a bit during 2001 and 2002—and the tariffs therefore were a violation of America’s WTO tariff-rate commitments. WTO gave a verdict against higher tariff and imposed huge sanction on the USA. So the USA withdrew the high tariffs under all round pressure.

The supporters of free trade rejoiced at that time So the high tariff was not because of higher import from some other countries but because of basic weakness in the steel industry. In September 2003, the U.S. International Trade Commission (ITC) examined the economic effects of the Bush 2002 steel tariffs. The economy-wide analysis was designed to focus on the impacts of the relative price changes resulting from the imposition of the tariffs, and estimated that the impact of the tariffs on the U.S. welfare ranged between a gain of $65.6 million (0.0006 per cent of GDP) to a loss of $110.0 million (0.0011 per cent of GDP). According to a 2005 review of existing research, all studies on the tariffs found that the costs of the safeguard measures outweighed their benefits in terms of aggregate GDP and employment as well as having an important redistributive impact. The above has also exposed the ineffectiveness of WTO.

The solution to the problem is that the attempt of the WTO to thwart such protectionist tendency can succeed if greater power is given to it to make its order effective immediately and not after two years or so as in the case of the Byrd Amendment.

Sukumar Mukhopadhyay New Delhi

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