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Bush's Crony Capitalism
By Thomas Oliphant
3/26/2002
WASHINGTON -- When you hear political people, in both parties no less, claim that you'll barely notice the pain, that it shouldn't last long, and that it might not even happen at all, the message is clear: Count the silverware.
For the second time this month, President Bush has acted in direct contravention of his alleged belief in open markets to throw American muscle around in a fashion guaranteed to produce the greatest harm for the greatest number - all in the interest of the most special of interests.
Earlier this month it was steel. Now it is softwood lumber products. Bush has managed to set the stage for higher car and appliance prices as well as for higher house prices in a couple of moves that promise to eliminate the effects of last year's tax cuts for many who are buying cars or new homes this year.
The first mov - slapping higher duties on imported steel products - was aimed at a group of countries less developed than the United States. The latest - slapping higher duties on imported softwood lumber - is aimed at the country's largest trading partner, Canada. The moves are equally silly.
More expensive steel products will do little to help a drastically shrunken steel industry back on its feet. More expensive lumber from softwood trees (like poplar) will similarly be of marginal benefit at best unless you call the ability of comparatively inefficient producers to get away with higher prices good for the country.
In each case, moreover, the harm greatly outweighs the alleged benefit to the special interests that won Bush's attention. There are far more jobs involved in using or importing steel than in making it. And the impact of the lumber industry is minuscule compared with homebuilding, which by some calculations employs up to 30 times more people.
There are a few things worth knowing about last week's move by the Commerce Department to impose tariffs in a range of 20 to 28 percent on softwood lumber from all of Canada except the Maritimes. The decision came after repeated attempts at negotiations failed and a deadline for agreement passed. The dispute has been going on for about 20 years, though the United States and Canada have been squabbling about lumber for 200 years.
This is a big deal. About one-third of all the softwood lumber used in this country comes from Canada. The trade is worth around $6 billion annually. And if the domestic home builders are correct, the $1,000 or so the higher tariffs will add to the price of an average new home is enough to price 300,000 American families out of the mortgage market.
What in the eyes of US lumber people is a subsidy by Canada to its own industry that permits "dumping" of cheaper products on the American market is in Canadian eyes nothing more than a different way of managing government-owned forests. And the US response appears to be a limit on market access of the sort forbidden under the North American Free Trade Agreement.
The specific dispute involves something called "stumpage" prices. The charge to Canadian lumbermen who operate on government- owned land is (surprise, surprise) lower than the prices charged in this country, where there is far more commerce on privately owned land. How this difference constitutes a flagrant subsidy escapes most disinterested brains outside the US lumber industry.
The tariffs will not actually be collected until the US International Trade Commission rules on whether the Canadian practices are in fact subsidies conferring an unfair advantage on the Canadian industry and injuring the Americans. A ruling is expected in roughly two months.
There is little drama regarding the outcome. Increasingly, the commission has evolved into a rubber stamp for special US pleaders, and it has a record of being deferential to political pressure. To drive home the point and make this ugly matter bipartisan, Senate Finance Committee chairman Max Baucus, Democrat of Montana, got more than half the Senate to sign a letter leaning on the commission to adopt the US industry's position. In this atmosphere, the International Trade Commission is to open markets what the Federal Election Commission is to clean campaigns.
Bush administration officials, in effect pleading guilty to special-interest protectionism, note that the president's steel tariffs redeemed a campaign promise that helped him win office by carrying West Virginia. They also note that lumber is an especially political business, with powerful advocates like Baucus and Republican leader Trent Lott. The real free trader Bush will eventually emerge, they promise.
We'll see. For now, the administration is practicing crony capitalism more worthy of Suharto's Indonesia than the most powerful nation in the world. It is also piling hidden taxes on American consumers and jeopardizing much larger industries with presumably less effective lobbyists.
(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes.)
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