Washington’s decision to protect the US steel industry by imposing tariffs on imported steel was widely predicted, as were the resulting howls of protest, particularly from the Europeans. Now the dispute is likely to make its way to the World Trade Organization. That is unlikely to be a speedy process. In the meantime, a full-scale trans-Atlantic trade war could break out, which will require a great deal more than a single wise ruling from the WTO.
The root cause of the problem is that the world has too much steel-making capacity. The United States can already produce far more steel than it can consume domestically. Thirty US steel makers have closed down in the last five years, partly because of this, but also because of the high cost base for US steel production. But meanwhile US manufacturing industry has been turning to imports of cheaper foreign steel, classically from Asia and Eastern Europe. For US automakers, cheaper steel means that they can stay in touch with their international rivals in the highly competitive auto market.
Nevertheless, even if the economic sums added up for the Bush steel tariffs, the political sums probably do not. Putting up the import barriers is a major headache for the Europeans. The trouble stems not from the fact that five percent of European steel output is sold to the US. The real difficulty lies in the fact that the cheap steel that the US would have bought will now flood into Europe, forcing the Europeans, in their turn, to erect trade barriers. But European politicians are all dedicated, via the WTO, to a reduction, not an increase, in the number of trade tariffs.
A lot of the cheap steel comes from countries which directly or indirectly subsidize their steel making, such as China, Poland and Turkey. EU steel-makers are in the last stages of phasing out subsidies. Their producers cannot, therefore, compete price for price with a steel deal offered by say, Eregli Iron and Steel at Erdemir in Turkey. Short of shutting the Turks out, which would actually be difficult because of the customs union the EU granted it as a sop for refusing it EU membership, the European steel industry will see domestic orders collapse.
It is unlikely to be long before the confrontation widens to include US beef, laden with growth-inducing hormones and genetically modified crops, such as soya. As with any conflict, once the hostilities start, wise counsel and common sense are forced to take a side seat.
The feeling in Europe is that would have been much wiser if President Bush had taken a case-by-case review of countries that sell subsidized steel to the US. Had he bothered to have his trade officials challenge individual foreign steel suppliers in the courts, he could have made his case without upsetting a load of folks whom he really needs to have on his team. But the Bush White House seems to be very much in the shoot-first-and-ask-questions-afterward business. It all began with his unilateral dumping of US agreement to the Kyoto environmental treaty. Now he has acted unilaterally over steel. Yet, when he wants to avenge Sept. 11, Bush expects everyone else to fall in behind him. A little less bullying and a bit more diplomacy might be wiser.
