A challenge for compassionate conservatism

George W. Bush should follow his free market instincts and resist pressure to protect America's steel industry, says Amity Shlaes.

Back in his campaign days, George W. Bush, a free marketeer, talked a lot about "compassionate conservatism". This was viewed in political circles as clever, since it supposedly broadened the candidate's appeal to undecided voters at the middle of the spectrum. Demonstrating a stake in "compassion" would prove that Mr Bush was no stentorian absolutist.

Mr Bush's free market friends worried that "compassionate conservatism" could eventually land him in trouble. Free markets, they noted, could be inherently compassionate, because they created jobs. If Mr Bush felt the need to add the adjective "compassionate" to campaign slogans, he might feel the need in office to soften the market's work with left-leaning social welfare measures of the kind that slowed growth.

Now the president has landed in just such a "compassion" fix. His decision will send an important signal to the world on America's growth and free trade commitment and his administration's free market bona fides.

At issue is a classic "compassion" case: a displaced economic sector. Old US steel is on its back. Some portion of the industry's 200,000-odd jobs are at risk; the companies' healthcare commitments to workers and retirees are likewise imperilled.

The industry, or what is left of it, is therefore asking Washington to impose tariffs on imports of steel as high as 40 per cent and to assume responsibility for the healthcare of steel retirees - a cost that would run into billions of dollars. It wants action by next week, when - under Section 201 of US trade law - the government must reply to a request from America's International Trade Commission for action to protect steelmakers.

Steel's friends have built up a fine steam of self-righteousness. The steel industry, warns Senator Robert Byrd (of the steel state West Virginia) "cannot be made the sacrificial lamb to placate the European Union". The September 11 attacks have only made steel's supporters bluster more loudly: "A strong 201 tariff remedy is in the national interest," writes the American Iron and Steel Institute's Andrew Sharkey. The administration appears to be heeding these cries. The government is mulling over the tariff issue and pondering ways to help the industry out on its healthcare liabilities.

The advocates of rescue have four arguments, at least two of which are as much a matter of politics as compassion. First, the workers need help. Second, saving Big Steel is indeed a wartime security measure. Third, easing steel's pain will smooth the recovery and help the Republicans in mid-term elections. Mr Bush's father, after all, was defeated during an economic recovery that still felt like recession for many - including steel workers.

The last reason relates to trade promotion authority - the presidential right to reduce Congress's say on trade treaties to a simple "yea" or a veto. Giving fast-track authority to the president is a grand free trade and conservative cause and getting it through the Senate would require backing from senators from Big Steel states. Even free marketeers should support a steel remedy, say its advocates, because failing to deliver one would also kill the greater good of fast-track authority.

But these sophisticated arguments are less compelling than the free marketeers' objections. The free marketeers point out, first of all, that the tariff would be pointless: the largest competitive threat to Big Steel is not foreign companies but America's own efficient mini-mills. Second, they say that a healthcare bail-out would set a dangerous precedent. America should be heading in the direction of privatisation of healthcare, not its further socialisation.

Third, backing tariffs while talking free trade around the world would antagonise other nations. This certainly makes sense. The measure would anger not only Japan and Europe but also smaller steel-producing countries that trade with the US, from Moldova and Macedonia to Brazil. The timing is particularly poor, what with the US asking these nations for help on the anti-terror front. What is more, whatever gains the US may enjoy from its new trade promotion authority, it still will not be particularly welcome at the negotiating table if its trade partners view it as an incurable hypocrite.

Then there is perhaps the most important objection: that keeping Big Steel on life support is not compassionate at all. It hurts steel consumers, who vastly outnumber steel workers. It hurts the car industry, which is already likely to be challenged by new emissions standards. It also hurts the overall US economy, which is still bleeding jobs. The free marketeers say the best way to lower American unemployment is to leave Big Steel to itself and concentrate on measures that would generate jobs in sectors with an economic future.

Last, there is the issue of consistency on economics at home. The administration has spent this past winter trying to make the case that tax cuts will stimulate purchasing power - and therefore the economy - by putting cash in the hands of lower earners. Making consumer products from cars to cameras more expensive via additional tariffs hardly fits into this argument.

Last week Glenn Hubbard, chairman of the Council of Economic Advisers, railed publicly against a new "orthodoxy" that government is the "centre of good economic performance" and that there should be "an economy of guarantees". Now it is up to Mr Hubbard's colleagues and boss to prove that they are not the chief promulgators of such an orthodoxy.

* Last week I wrote that John Kornblum, the senior US diplomat in Berlin in 1987, opposed the "tear down this wall" appeal in President Ronald Reagan's famous speech. Mr Kornblum informs me that he backed not only the speech but also the phrase itself.

© Copyright 2002 Financial Times

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