President Bush Lifts Controversial Steel Tariffs
President Bush Lifts Controversial Steel Tariffs

Almost two years after imposing them, President Bush in December 2003 lifted tariffs on steel imported to the United States from countries around the world, citing evidence that the tariffs had enabled sagging U.S. steel companies to restructure and become more competitive with foreign producers. Bush stated, “I took action [to impose the tariffs] to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods. These safeguard measures have now achieved their purpose and as a result of changed economic circumstances, it is time to lift them.”

The Bush administration had imposed the tariffs in March 2002 to combat what was claimed to be a surge of imports of foreign steel at a time when the American steel industry was suffering a severe downturn. The tariffs were to last for three years, during which U.S. steel producers would gain valuable time to revamp their operations to sharpen their competitiveness. However, last July, the World Trade Organization (WTO) formally ruled the U.S. tariffs were in violation of the global trading regulations, allowing affected countries, such as those in the European Union (EU) and Japan to take retaliatory measures on importation of U.S. products.

In addition to the removal of tariffs, President Bush announced he would continue the early reporting requirements that were imposed when the tariffs were levied in 2002 to detect any big influx of steel into the United States. The reporting program requires steel importers to apply for import licenses, giving the government a quicker way to detect import surges than waiting for Customs Service data when the steel arrives at U.S. ports.

The removal of the tariffs ended the threat of a trade war with Europe, Japan, China, and South Korea but complicated the president’s re-election campaign strategy in steel-producing states, which supported the tariffs, and steel-consuming states, which opposed them. Soon after the president lifted the tariffs, the 15-nation European Union announced it would lift its threat of sanctions on $2.2 billion of U.S. products that would have taken effect December 15, 2003. EU Trade Commissioner Pascal Lamy said, “These sanctions…were there as a tool for compliance. They’ve complied and the sanctions will disappear.” He added that the action shows that the WTO provides “a mechanism respected by the biggest of elephants, i.e., the United States.”

U.S. Trade Representative Robert B. Zoellick echoed the president in explaining the lifting of tariffs, saying sales of domestic steel and company profits are up dramatically. “Not only is the industry much stronger today than it was 21 months ago, but the economic circumstances that justified the safeguard have changed,” Mr. Zoellick said. He noted that production has risen across the board on more than a dozen major steel products and said “prices today are about 15 to 30 percent higher than in February 2002, the month before the safeguard.”

There had been no doubt about the problems facing the U.S. steel industry. From 1998, 42 steel companies went into bankruptcy, more than 50,000 steelworkers lost their jobs, and the government had to take over pension plans for 17 steel companies with 240,000 participants and nearly $7 billion in benefits, according to the steelworkers union.

During the period the tariffs were in effect, the industry rejuvenated somewhat. According to Zoellick, “After losing nearly $5 billion in the 24 months before the safeguard was initiated, the flat-rolled [steel] industry posted profits of $400 million during the first 12 months of relief.” Continuing the tariffs, though, would place an undue burden on taxpayers, he said. “In the first 21 months of the safeguard, the benefits to the industry outweighed the marginal cost to consumers. Going forward, however, this is not the case.”

Zoellick also said the decision to repeal the tariffs was “independent” of politics, despite the fact that the EU had carefully chosen its target list to cover a range of products from oranges to pajamas that would inflict maximum political pain in key swing states that President Bush is hoping to win in next year’s presidential race. “The industry’s much better off. We’re not facing retaliation. That strikes me as a good combination,” he said.

Nevertheless, the move has wide political impacts for next year’s presidential campaign, especially in states in the Rust and Steel belts—all targets of the Bush-Cheney 2004 re-election team. The tariffs had pleased the $50 billion steel industry in states such as Pennsylvania, Ohio, and West Virginia, but angered small manufacturers and their workers in Michigan, Minnesota and Wisconsin.

Overall, the industry has mixed feelings about the repeal of the steel tariffs. In the months that the tariffs had been in effect, the steel industry made some considerable changes for the better. The industry consolidated; larger competitors bought some ailing steel firms, such as National Steel and Bethlehem Steel. The industry’s largest union, the United Steel Workers of America, agreed to more flexible work practices, profit-sharing, and even some layoffs in order to give its remaining members a fighting chance of saving their jobs.

Just as important, demand for steel is picking up: the world may face a supply shortage and a price spike next year. At the same time, the tariffs provided for many exemptions and may have had little real impact on the restructuring of the industry, which was needed and likely to happen even without the tariffs.

Most importantly, the tariffs did some symbolic harm to the U.S.’s usual position as a champion of open markets. Along with the U.S. farm bill that increased agricultural subsidies, the tariffs came at a time when the United States was trying to move forward the latest round of WTO trade talks. They seemed, therefore, to be hypocritical because the United States was acting in a protectionist manner regarding its own trade interests while trying to promote free trade for other nations. The lifting of the tariffs may go some distance for dispelling that opinion among other countries, opening up possibilities for moving forward the negotiations.

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