Last year, U.S. President George W. Bush angered much of the rest of the world by announcing the U.S. would impose a tariff on imported steel. Last month, the World Trade Organization (WTO) ruled the tariff illegal. Some of the U.S.'s main trading partners, notably the European Union, have begun preparing retaliatory economic sanctions. Now, Washington is reported to be rethinking the tariff.
Washington, 2 December 2003 (RFE/RL) -- The administration of U.S. President George W. Bush is expected this week to announce he is lifting a tariff on imported steel imposed nearly two years ago.
The World Trade Organization (WTO) ruled last month the tariff violated its rules. This led several of America's trading partners to prepare retaliatory sanctions on U.S. goods beginning as soon as 15 December. The European Union alone was planning tariffs on up to $2.2 billion in American exports.
Bush justified the tariff by saying it would protect U.S. steel makers from subsidized steel produced abroad that was being "dumped" on U.S. markets at below-market prices. Bush said the tariff would save 100,000 U.S. jobs.
The U.S.'s trading partners immediately denounced the decision as nothing more than protectionism.
American economists interviewed by RFE/RL say the steel tariff made little economic sense. One -- Ann Florini of the Brookings Institution, a private policy center in Washington -- says Bush should have known from the start the WTO would never have upheld the program.
Florini says the American position was that the steel industry needed temporary relief from inexpensive steel imports while it reorganized. She says the industry had become fractured, and smaller steel producers could not afford workers' wages, health costs, and pensions.
But Florini says the conditions do not warrant a tariff. She is also critical of U.S. officials who justify the tariff by pointing to the European Union's program of agricultural subsidies and say, in effect, "if they can do it, we can too."
"You can make an argument on steel -- although it's not one that I'd buy -- that the protection was a temporary measure meant to allow the industry to get back on its feet, which is still illegal under WTO rules. But when we accuse the Europeans of being protected [in agriculture] and claim that we're not, that's just total hypocrisy. Our agricultural subsidies are outrageous, just like the European ones are outrageous," Florini says.
In fact, during the past two years, weak U.S. demand for imported steel and a weaker dollar have prompted foreign steel producers to sell elsewhere -- particularly to China, where demand recently has been enormous. Meanwhile, the American steel industry has consolidated, with some small steel producers going bankrupt, and others being bought by better-financed operations.
Claude Barfield, an economist with another Washington think tank, the American Enterprise Institute, says the steel tariff actually hurt the U.S. economy. He says the goal was to protect steelworkers' jobs, but the Bush administration apparently failed to realize that the tariffs -- by making steel in the United States more expensive -- hurt the industries more that use steel. The negative impact outweighed the positive.
He disagrees with Florini, however, in saying that the tariffs were a violation of the WTO's rules.
"It was perfectly legitimate for the United States to invoke safeguards, and then it was perfectly legitimate for the other side to say, 'You're misusing it.' And then the system works," Barfield said.
Many suspect the president's true motivation in imposing the tariffs was political. Many of the main steel-making areas are in the large states of Michigan, Ohio, and Pennsylvania. These are states that Bush would like to win in the next election.
Florini says any decision to drop the steel tariff might also be political. In retaliation the European Union, for example, said it would make imports of U.S. orange juice more expensive. Orange juice is made in Florida, a state that Bush won in the last election by a mere handful of votes.
"It could hit Florida hard. I think, in fact, the Europeans have been very clever in coming up with a set of retaliatory measures -- now legalized by the WTO -- that would have political consequences that they certainly hope would outweigh whatever political costs there are to keeping the steel tariffs on. I think it's a very, very smart move on the EU's part [to target orange juice]," Florini said.
Florida has an area of more than 170,000 square kilometers, of which 41,000 square kilometers is farmland -- and much of that is devoted to citrus production. Florini says juice and other citrus products are high on the list of U.S. exports that would be affected by new EU sanctions.