Bush Imposes Duties on Steel Imports
Bush Imposes Duties on Steel Imports

When the US is caught between domestic pressure and respecting its international commitments, the former prevails. The world steel market is not the Wild West, where people do as they like. There are rules to guarantee the multilateral system.” Pascal Lamy, European Union Trade Commissioner

On March 5, 2002, President Bush imposed tariffs varying from 8 to 30 percent on steel imports to the United States setting off protest from international trade partners around the globe. Just four months after agreeing on a new international trade round in Doha, the United States ruling on steel tariffs has caused concern that agreements reached in Doha will succumb to a protectionist agenda.

The decision by President Bush produced a swift and severe response from the leaders of the European Union. The European Union (EU) immediately signaled that it intended to challenge the U.S. decision at the World Trade Organization and perhaps impose its own safeguard measure to prevent import surges diverted to the EU from third countries such as China, Brazil, and India.

The winners: President Bush’s ruling on steel imports helps several, powerful, domestic groups. Steelworkers are ensured of continued jobs and benefits, due to the improved competitiveness of U.S. steel producers, compared to tariff-burdened imports. Retired steelworkers still receiving pension benefits will avoid loss of benefits caused by additional bankruptcies.

Some argue this type of protection is vital to the survival of the American steel industry, unable to compete with lower priced imports that “flood” the U.S. market. Robert Zoellick, the United States Trade Representative, explained, “[the] drop in demand in Asia for steel as a result of the meltdown of Asian economies, plus a strong dollar that fuels export-led growth globally, has conspired to bring an unprecedented flood of imports into U.S. markets.” Evidence of the difficulties faced by U.S. steel is the loss of 45,000 jobs since 1997. Nearly 30% of U.S steel manufacturers have filed for bankruptcy, in the past five years.

Most free-trade advocates saw the Bush decision as motivated largely by domestic politics. George Bush’s campaign promises to protect steelworkers were widely regarded as having helped Bush carry the key “rust-belt” states of West Virginia and Pennsylvania. The administration may have feared that a broken campaign promise on this issue could endanger both the 2004 presidential election and the battle for control of the House of Representatives later this year.

The President is also trying to gain Trade Promotion Authority (TPA) from Congress. TPA would allow comprehensive trade deals sent to Congress for approval by the President to receive up or down action by the Senate and the House of Representatives, without amendment. TPA would give added credibility to U.S. trade negotiators in bilateral (e.g. U.S.-Chile and U.S.-Singapore), regional (FTAA), and multilateral (WTO-Doha) trade talks. However, both the Senate and the House have to approve TPA, and winning passage of the measure is expected to be extremely difficult.

The President won passage of TPA in the House in December, but only by the narrowest possible margins—one vote, 216 to 215. The Bush safeguard action on steel may help the Administration win some borderline votes for TPA in the Senate.

The losers: foreign steel manufacturers will be hurt by the imposition of tariffs on their imports to the United States. The Europe Union, Brazil, South Korea, Russia, and Australia will be among the most affected by the tariffs. Higher prices on their product will reduce demand in the United States and significantly hinder the competitiveness of foreign steel. European steel makers are facing a double trade loss as their exported steel is now facing new U.S. tariffs and there is a potential influx of cheap Asian steel into the EU market that would have otherwise been sold in the U.S.

Also losing are U.S. consumers and the companies that use steel in their products. As steel is subjected to tariffs, it is inevitable that the price of steel will rise for U.S. purchasers of domestic steel as well as for importers. This higher price will hurt U.S. auto and appliance manufacturers, making them less competitive in the domestic and global market. As a result, many companies may choose to shift overseas the production of goods that use steel.

Among the losers, the European Union has acted quickly in identifying a three-pronged approach in countering the tariff decision. First, the EU thinks the U.S. action is illegal under WTO rules because it has not met the requirement of showing an absolute increase in imports. The EU has announced its intention to take the case before the WTO dispute settlement panel.
Second, the EU has submitted a separate request for immediate compensation to make up for lost EU steel exports to the U.S. market, which the EU estimates to be worth $2 billion dollars. But such compensation is only required if indeed the U.S. has not followed the applicable WTO rules.

Third, the EU is also preparing to introduce safeguard measures to deal with steel imports diverted to the EU from the United States. Other countries such as Brazil, South Korea and China have denounced the U.S. decision and have said they will coordinate their strategies with the EU. The Australian Ministry of Industry highlighted the international perspective on this decision: “We’re not going to lie down on this. The Americans are doing what they always do, they put their own interests first.” The stage is set for a bitter trade debate.

The U.S. tariff ruling brings unease to the global trading regime. The potential for a prolonged trade war supporting protectionism and limiting the benefits of trade would threaten the stability of the global economy. Some have particularly criticized the U.S. for pursuing unilateral interests despite its simultaneous effort to build solidarity among its allies in the fight against global terrorism.

And yet the President wants to ensure domestic growth and jobs for U.S. workers. The decision on steel tariffs highlights the collision between the goals of domestic economic protection and international free trade. This dispute is certain to be played out with considerable intensity in both the domestic and international arenas for months to come.

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