Thursday, January 29, 2009

Protecting Steel from Foreigners

Last week I made an argument that there were some circumstances where protectionism might be logical and needed. Apparently the president agrees, because it's part of his economic stimulus package, particularly in regards to steel.

Almost immediately, representatives from the EU began calling for the removal of any protectionist elements from the bill, particularly with regards to steel. European steel isn't the problem. European steelmakers operate on a fairly level playing field with US steelmakers because Europe requires their factories to meet standards similar to those in the US with regards to pollution, product and worker safety. The problem is Asian countries who don't have these safeguards and can produce steel much cheaper because they don't.

There's a diplomatic problem though, with singling out Asia or particular Asian countries from the stimulus bill, which is probably why they chose to word it so that it covers all foreign-produced steel. The other possible problem is that I suspect this aspect of the bill comes from the United Steelworkers Union and invoking protectionism for the sake of unions can be problematic.

It may also be that we have WTO, EU and other treaties that prevent this element of Obama's stimulus package. If that happens, then we have the choice of either passing them as is and trying to change the treaties after the fact, or we can remove the provision until such time that we can secure changes in these treaties, or we can just pass it as is and let the chips fall where they may with regards to any trade treaties.

I can't recommend the third option, but I can't rule it out either. The answer here has to be a policy of not entering into international trade agreements with countries who use a lax legal environment with regards to pollution, worker and product safety to cut costs and make their products cheaper than ours. If we can get the EU to agree with us on this, then the move would have even more clout. Moves like this might even make agreements like the Kyoto document redundant and unnecessary.

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