Fri November 21, 2003 07:25 PM ET By Adam Entous WASHINGTON (Reuters) - President Bush may end tariffs on steel imports as early as next week but keep in place a system -- favored by U.S. steel producers -- to license and track imports to minimize the risk of sudden surges, industry sources said on Friday. Groups representing steel importers, which oppose the steel tariffs, say they would go along with the import licensing plan if necessary. Under pressure from major U.S. trading partners and senior White House advisers, Bush is expected to repeal -- or at minimum scale back -- the steel tariffs to head off a trade war with the European Union, according to Republican sources, industry executives and congressional aides. The WTO's highest court ruled that the tariffs violated international trade laws, and the EU has threatened to retaliate by mid-December on $2.2 billion of American exports if Washington refuses to repeal them. http://www.reuters.com/newsArticle.jhtml?type=topNews&storyID=3874467
The actual situation is, of course, more complicated than this hypothetical example. Many nations, and not merely the United States and Japan, are engaged in trade, and the trade often takes roundabout directions. The Japanese may spend some of the dollars they earn in Brazil, the Brazilians in turn may spend those dollars in Germany, the Germans in the United States, and so on in endless complexity. However, the principle is the same. People, in whatever country, want dollars primarily to buy useful items, not to hoard, and there can be no balance of payments problem so long as the price of the dollar in terms of the yen or the deutsche mark or the franc is determined in a free market by voluntary transactions. Why then all the furor about the "weakness" of the dollar? Why the repeated foreign exchange crises? The proximate reason is because foreign exchange rates have not been determined in a free market. Government central banks have intervened on a grand scale in order to influence the price of their currencies. In the process they have lost vast sums of their citizens' money (for the United States, close to two billion dollars from 1973 to early 1979). Even more important, they have prevented this important set of prices from performing its proper function. They have not been able to prevent the basic underlying economic forces from ultimately having their effect on exchange rates but have been able to maintain artificial exchange rates for substantial intervals. The effect has been to prevent gradual adjustment to the underlying forces. Small disturbances have accumulated into large ones, and ultimately there has been a major foreign exchange "crisis." In all the voluminous literature of the past several centuries on free trade and protectionism, only three arguments have ever been advanced in favor of tariffs that even in principle may have some validity. First is the national security argument--the argument that a thriving domestic steel industry, for example, is needed for defense. Although that argument is more often a rationalization for particular tariffs than a valid reason for them, it cannot be denied that on occasion it might justify the maintenance of otherwise uneconomical productive facilities. To go beyond this statement of possibility and establish in a specific case that a tariff or other trade restriction is justified in order to promote national security, it would be necessary to compare the cost of achieving the specific security objective in alternative ways and establish at least a prima facie case that a tariff is the least costly way. Such cost comparisons are seldom made in practice. We could say to the rest of the world: We cannot force you to be free. But we believe in freedom and we intend to practice it. The second is the "infant industry" argument advanced, for example, by Alexander Hamilton in his Report on Manufactures. There is, it is said, a potential industry that, if once established and assisted during its growing pains, could compete on equal terms in the world market. A temporary tariff is said to be justified in order to shelter the potential industry in its infancy and enable it to grow to maturity, when it can stand on its own feet. Even if the industry could compete successfully once established, that does not of itself justify an initial tariff. It is worthwhile for consumers to subsidize the industry initially--which is what they in effect do by levying a tariff--only if they will subsequently get back at least that subsidy in some other way, through prices lower than the world price or through some other advantages of having the industry. But in that case is a subsidy needed? Will it then not pay the original entrants into the industry to suffer initial losses in the expectation of being able to recoup them later? After all, most firms experience losses in their early years, when they are getting established. That is true if they enter a new industry or if they enter an existing one. Perhaps there may be some special reason why the original entrants cannot recoup their initial losses even though it may be worthwhile for the community at large to make the initial investment. But surely the presumption is the other way. The infant industry argument is a smoke screen. The so-called infants never grow up. Once imposed, tariffs are seldom eliminated. Moreover, the argument is seldom used on behalf of true unborn infants that might conceivably be born and survive if given temporary protection; they have no spokesmen. It is used to justify tariffs for rather aged infants that can mount political pressure. The third argument for tariffs that cannot be dismissed out of hand is the "beggar-thy-neighbor" argument. A country that is a major producer of a product, or that can join with a small number of other producers that together control a major share of production, may be able to take advantage of its monopoly position by raising the price of the product (the Organization of Petroleum Exporting Countries cartel is the obvious example). Instead of raising the price directly, the country can do so indirectly by imposing an export tax on the product--an export tariff. The benefit to itself will be less than the cost to others, but from the national point of view, there can be a gain. Similarly, a country that is the primary purchaser of a product--in economic jargon, has monopsony power--may be able to benefit by driving a hard bargain with the sellers and imposing an unduly low price on them. One way to do so is to impose a tariff on the import of the product. The net return to the seller is the price less the tariff, which is why this can be equivalent to buying at a lower price. In effect, the tariff is paid by the foreigners (we can think of no actual example). In practice this nationalistic approach is highly likely to promote retaliation by other countries. In addition, as for the infant industry argument, the actual political pressures tend to produce tariff structures that do not in fact take advantage of any monopoly or monopsony positions. A fourth argument, one that was made by Alexander Hamilton and continues to be repeated down to the present, is that free trade would be fine if all other countries practiced free trade but that, so long as they do not, the United States cannot afford to. This argument has no validity whatsoever, either in principle or in practice. Other countries that impose restrictions on international trade do hurt us. But they also hurt themselves. Aside from the three cases just considered, if we impose restrictions in turn, we simply add to the harm to ourselves and also harm them as well. Competition in masochism and sadism is hardly a prescription for sensible international economic policy! Far from leading to a reduction in restrictions by other countries, this kind of retaliatory action simply leads to further restrictions. We are a great nation, the leader of the world. It ill behooves us to require Hong Kong and Taiwan to impose export quotas on textiles to "protect" our textile industry at the expense of U.S. consumers and of Chinese workers in Hong Kong and Taiwan. We speak glowingly of the virtues of free trade, while we use our political and economic power to induce Japan to restrict exports of steel and TV sets. We should move unilaterally to free trade, not instantaneously but over a period of, say, five years, at a pace announced in advance. Few measures that we could take would do more to promote the cause of freedom at home and abroad than complete free trade. Instead of making grants to foreign governments in the name of economic aid--thereby promoting socialism--while at the same time imposing restrictions on the products they produce--thereby hindering free enterprise--we could assume a consistent and principled stance. We could say to the rest of the world: We believe in freedom and intend to practice it. We cannot force you to be free. But we can offer full cooperation on equal terms to all. Our market is open to you without tariffs or other restrictions. Sell here what you can and wish to. Buy whatever you can and wish to. In that way cooperation among individuals can be worldwide and free."
Economic warfare for whom ? Those who own the US, European and Asia Giant Businesses are now TOTALLY INTERNATIONAL FIRMS : they don't care about the color of the flag, if they'd care they wouldn't have overloaded with revenu and social taxes in US and above all in European countries (you are far from the same level than Europe yet so you lucky one for you will have still "progress" for taxes ) and take the pretext to delocalise in countries where they can exploit the workers of these countries who have no other choice than to have an "unfair" competition with the workers of US and Europe. THEY DO the law for Socialism (see http://www.elitetrader.com/vb/showthread.php?s=&threadid=24336) and after that they faint to pretext that it hurst them whereas it gives them pretext to exploit both workers of poor countries by delocaliastion and consumers of richer countries by protectionism. P.S.: when you want something to flourish you don't tax it so heavily. When an employee is taxed 100% of his net salary like in Europe (I don't even include the one month of paid holliday !) - I know it particularly since I had to pay salary to my engineers - no wonder why there is so much unemployment. In US it's not so much I think because you are not yet in a socialist regim but don't worry that's the "progress" wanted for the whole world including US .
A benign example: there is a tariff on imported citrus products. brazil's labor is cheaper, they don't have anywhere near the enviro- and other regulatory overhead. The field is tilted in their favor as a result. Eliminating the tariff is likely to cause a major redistribution of domestic citrus production into the hands of large corporate interests, several of which are foreign (Brazilian, in fact, and French). Protecting the interests of domestic capital must be considered as a primary duty of any president. It isn't just a matter of yapping about 'free trade' and 'tariffs suck' and doing without them. It can be said that certain competitor nations have 'negative tariffs' owing to their distortions of the costs of production. For example is the small businessman who must factor regulatory overhead into his price. He will have competitors who, either by negligence, design, poor capitalization, etc. fail to pay the overhead and therefore can distort the marketplace with artificially low costs. If they are allowed to persist, and the honest players can't continue to compete as a result, the market is left with uncomitted players who are poorly capitalized to begin with, and likely won't be able to make the long haul. This opens the door to foreign competitors.
US, Asia are used as pretext for Europe and vice-versa. This is as old strategy as the World exists. Just compare Brezinski - president of Trilateral Commision founded by Rockfeller and former National Security Advisor of United States - words http://www.fromthewilderness.com/free/ww3/zbig.html "as America becomes an increasingly multi-cultural society, it may find it more difficult to fashion a consensus on foreign policy issues, except in the circumstance of a truly massive and widely perceived direct external threat." with 1984 from George Orwell http://www.online-literature.com/view.php/1984/17?term=warfare "In Oceania the prevailing philosophy is called Ingsoc, in Eurasia it is called Neo-Bolshevism, and in Eastasia it is called by a Chinese name usually translated as Death-Worship, but perhaps better rendered as Obliteration of the Self. The citizen of Oceania is not allowed to know anything of the tenets of the other two philosophies, but he is taught to execrate them as barbarous outrages upon morality and common sense. Actually the three philosophies are barely distinguishable, and the social systems which they support are not distinguishable at all. Everywhere there is the same pyramidal structure, the same worship of semi-divine leader, the same economy existing by and for continuous warfare. It follows that the three super-states not only cannot conquer one another, but would gain no advantage by doing so. On the contrary, so long as they remain in conflict they prop one another up, like three sheaves of corn. And, as usual, the ruling groups of all three powers are simultaneously aware and unaware of what they are doing. Their lives are dedicated to world conquest, but they also know that it is necessary that the war should continue everlastingly and without victory. Meanwhile the fact that there is no danger of conquest makes possible the denial of reality which is the special feature of Ingsoc and its rival systems of thought. Here it is necessary to repeat what has been said earlier, that by becoming continuous war has fundamentally changed its character. "
thanks for the link to Orwell on-line, harry. btw, remember brevity is the soul of wit [and other things].
Georges Orwell's 1984 http://www.online-literature.com/vi...17?term=warfare " From the moment when the machine first made its appearance it was clear to all thinking people that the need for human drudgery, and therefore to a great extent for human inequality, had disappeared. If the machine were used deliberately for that end, hunger, overwork, dirt, illiteracy, and disease could be eliminated within a few generations. And in fact, without being used for any such purpose, but by a sort of automatic process -- by producing wealth which it was sometimes impossible not to distribute -- the machine did raise the living standards of the average human being very greatly over a period of about fifty years at the end of the nineteenth and the beginning of the twentieth centuries. But it was also clear that an all-round increase in wealth threatened the destruction -- indeed, in some sense was the destruction -- of a hierarchical society. In a world in which everyone worked short hours, had enough to eat, lived in a house with a bathroom and a refrigerator, and possessed a motor-car or even an aeroplane, the most obvious and perhaps the most important form of inequality would already have disappeared. If it once became general, wealth would confer no distinction. It was possible, no doubt, to imagine a society in which wealth, in the sense of personal possessions and luxuries, should be evenly distributed, while power remained in the hands of a small privileged caste. But in practice such a society could not long remain stable. For if leisure and security were enjoyed by all alike, the great mass of human beings who are normally stupefied by poverty would become literate and would learn to think for themselves; and when once they had done this, they would sooner or later realize that the privileged minority had no function, and they would sweep it away. In the long run, a hierarchical society was only possible on a basis of poverty and ignorance. To return to the agricultural past, as some thinkers about the beginning of the twentieth century dreamed of doing, was not a practicable solution. It conflicted with the tendency towards mechanization which had become quasi-instinctive throughout almost the whole world, and moreover, any country which remained industrially backward was helpless in a military sense and was bound to be dominated, directly or indirectly, by its more advanced rivals. Nor was it a satisfactory solution to keep the masses in poverty by restricting the output of goods. This happened to a great extent during the final phase of capitalism, roughly between 1920 and 1940. The economy of many countries was allowed to stagnate, land went out of cultivation, capital equipment was not added to, great blocks of the population were prevented from working and kept half alive by State charity. But this, too, entailed military weakness, and since the privations it inflicted were obviously unnecessary, it made opposition inevitable. The problem was how to keep the wheels of industry turning without increasing the real wealth of the world. Goods must be produced, but they must not be distributed. And in practice the only way of achieving this was by continuous warfare. "
Japan Presses U.S. Over Steel Position Saturday November 22, 2003 11:31 AM TOKYO (AP) - Japan will slap a 30 percent tariff on U.S. steel products if Washington does not remove its steel import safeguards by the end of the month, a report said Saturday. The government will formally announce the planned penalties next week, Kyodo News reported. They also include a 5 percent special tax on U.S. leather goods and clothes, the agency said. The steps would be in retaliation for 8 percent to 30 percent tariffs the United States imposed on certain kinds of imported steel through March 2005. The U.S. tariffs were designed to give its battered steel industry time to regroup and consolidate, but Washington's trading partners argued they were illegal. Japan and other countries this month won a ruling from the World Trade Organization that the tariffs violated international fair-trade regulations, clearing the way for the retaliatory steps. Kyodo reported Tokyo's penalties would amount to $98 million a year, roughly equal to the financial damages suffered by Japanese steel producers from the U.S. measures. Japan's trade ministry could not immediately be reached for comment. Norway announced Friday it would give the United States until Dec. 6 to lift tariffs on foreign steel or face a 30 percent penalty duty on American products. The EU has threatened to impose retaliatory sanctions of up to $2.2 billion by introducing 100 percent duties on some U.S. imports, effectively pricing those goods out of the EU market. http://www.guardian.co.uk/worldlatest/story/0,1280,-3418597,00.html
I know but I will borrow from French Mathematician Blaise Pascal : "I have made this letter longer than usual, only because I have not had the time to make it shorter."