WTO promises "Trade War" over U.S. Steel Tariffs

In 2002, the Bush Administration imposed tariffs of 8 to 20 percent on most steel imports from Europe, Asia, and South America in an effort to help U.S. steel companies recover. This was a departure from Bush?s free-trade principles, and the tariffs drew fierce opposition through the World Trade Organization (WTO).

Three weeks ago, the WTO ruled that the tariff duties on imported steel were illegal and the European Union vowed to impose sanctions on up to $2.2 billion in imports from the United States. Japan also promised sanctions as well. While the matter is still under review by the President, those close to the White House said it is ?all but set in stone.?

During an awkwardly timed campaign trip to Pittsburgh, Thomas J. Usher, Chairman and Chief Executive of U.S. Steel, urged Bush to maintain a set of tariffs that raised prices of some imported steel by up to 30 percent. Bush had imposed the barriers last year to give U.S. Steel and other major steel producers time to consolidate.

Senior economic advisers are recommending that Bush end the sanctions now rather than extend them until 2005. The industry call for tariff protection has been amplified in recent years by campaign contributions. In just the past three years, major steel producers have contributed $6.5 million to federal office seekers, two-thirds of it to Republicans.

The implementation of steel tariffs was to stabilize the U.S. steel industry at a time when 31 major producers had gone bankrupt in the previous five years, the pension costs of 600,000 retired steelworkers imposed an enormous $1-billion annual burden on the surviving companies, and the 170,000 who still had jobs were worried about their future.

The tariffs had political purpose, aimed at steel-belt workers in Ohio, Indiana, West Virginia and Pennsylvania, where the number of steel workers had dwindled from 521,000 in 1974 to 170,000 - fewer than half of them working at the traditional coal-fired, blast furnace factories.

"The industry is better off today," said Peter Morici, University of Maryland business professor and former chief economist at the International Trade Commission. He pointed to the consolidation of the industry - U.S. Steel's purchase of National Steel Corp. and the International Steel Group's acquisition of LTV Corp. and Bethlehem Steel. In addition, the companies trimmed management and negotiated long-term steel contracts that greatly reduced job classifications.

Still, the tariffs illustrate the difficulty of protecting manufacturing jobs in a global economy. As the U.S. steel industry scaled down and moved production offshore, many U.S. companies began buying specialized products from foreign manufacturers. This was particularly true at makers of auto parts located in Michigan, Minnesota and Ohio.

With the sudden 30 percent spike in imported steel prices, auto parts makers organized noisy protests that surprised Congress and the administration and contributed to the administration's decision to exempt some imports last year and finally to lift the sanctions.

The tariffs also triggered a World Trade Organization protest from leading U.S. trading partners in Europe, Brazil, Korea and Japan. The WTO agreed that the tariffs were an illegal trade barrier, and the European Union announced a series of carefully targeted tariffs of their own.

Europe aimed $2.2 billion in new tariffs at oranges raised in Florida, pears and apples raised in Washington and Oregon, trench coats and T-shirts assembled in North and South Carolina and motorcycles made in Pennsylvania. They are set to take effect Dec. 15, and even yesterday EU trade minister Pascal Lamy said he was "getting impatient" waiting for the steel tariffs to be lifted.

The White House is expected to announce its steel decision this week, although Bush's press secretary, Scott McClellan, insisted the president has "been listening to producers, to consumers, to members of Congress and others, about their views on the issue."