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Bush Rescinds Steel Tariffs, Says Aims Met

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Times Staff Writers

President Bush lifted tariffs on imported steel Thursday, averting a costly global trade war but angering the domestic steel industry and many of his Republican allies from Rust Belt states, where steelworkers have benefited from the protective measures he imposed almost 21 months ago.

His decision came after the European Union threatened to levy $2.2 billion in retaliatory tariffs on U.S. exports. Similar threats were made by other trading partners, including Japan and China.

But the president justified the policy reversal by saying the tariffs, which raised the price of imported steel, “have achieved their purpose” -- granting a weakened domestic industry sufficient time to restructure and regain profitability.

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At the same time, Bush warned that he would “quickly respond” if heightened U.S. monitoring mechanisms should detect unfair practices by foreign steel companies that damage the American steel industry. In the past, foreign companies have benefited from government subsidies and have sold their products in the United States at artificially low prices.

Given the crosscurrents in the debate over steel tariffs, the reaction to Bush’s decision was predictably mixed. The steel industry and labor assailed the move, while manufacturers that buy steel praised it.

The United Steelworkers of America assailed the decision as “clear evidence of capitulating to European blackmail and a sorry betrayal of American steelworkers and steel communities.”

“Our trading partners obviously engaged the administration in a game of guts poker,” union president Leo W. Gerard said. “Instead of telling them to ‘bring it on,’ the president blinked.”

But the American Institute for International Steel said the action would “help restore the competitiveness of steel consumers and improve the ability of steel importers to provide American manufacturers the steel that is needed as the U.S. economy continues to recover.”

Tariffs are a schedule of fees that a government levies on imported goods to protect domestic makers of the same products. In announcing Bush’s action, both the White House and U.S. Trade Representative Robert B. Zoellick studiously clung to the word “safeguards” as a synonym for tariffs, with the trade official describing such duties as “an accepted principle of global trade rules.”

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He and other administration officials insisted that Bush had made his decision to lift the tariffs, which took effect at midnight, independent of domestic political considerations, without regard to any potential backlash in such steel-producing states as Pennsylvania, West Virginia and Ohio, all likely battlegrounds in next year’s presidential election.

Yet Bush’s actions -- both in lifting the tariffs and in imposing them -- have political implications.

In March 2002, when the tariffs were announced, domestic steel manufacturers were in trouble; in the previous four years, more than 30 companies had declared bankruptcy. Bush’s advisors viewed the tariffs as not only a tool to help a vital domestic industry but also as an opportunity to bolster political support among the nation’s estimated 150,000 steelworkers.

But the move antagonized manufacturers in steel-consuming states -- such as Michigan, with its auto-making plants -- because they had to pay more for steel.

Had he not lifted the tariffs, an ensuing trade war almost certainly would have hurt the economy -- and Bush politically -- as America’s trading partners imposed retaliatory duties against such U.S. exports as citrus fruits grown in Florida, textiles made in the Carolinas and motorcycles assembled in Pennsylvania and Wisconsin.

Minutes after Bush’s announcement on lifting the tariffs, European Union officials canceled their plans for retaliatory levies.

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Bush’s initial decision to impose tariffs ranging from 8% to 30% on most steel imports from Europe, Asia and South America marked a significant departure in policy for a self-avowed free-trader. The move prompted accusations from manufacturers and free-trade activists that the president was sacrificing his principles for political gain.

But the president and Zoellick contended Thursday that tariffs were a legitimate tool in international trade in the face of unfair competition, noting that 50 such “safeguards” were in place around the world. The steel tariffs were to have remained in place for three years.

“And the industry has used that breathing space well, to the benefit of many families and communities around the country,” Zoellick said at a media briefing.

He said Bush had acted last year only after the independent U.S. International Trade Commission found that thousands of jobs were at stake and many steel companies were in dire financial straits. In a follow-up report in September of this year, the commission found that the industry had made significant progress under the tariffs -- an assessment that Zoellick said provided “an important basis” for Bush’s deliberations in recent weeks.

Zoellick said that since the tariffs were imposed, the industry had undergone significant restructuring, eliminated 4 million tons of inefficient capacity and increased overall productivity by 12% to 26%. During the first 12 months of relief, he added, companies recorded $400 million in profits. By comparison, the industry lost nearly $5 billion in the 24 months before Bush imposed the duties, Zoellick said.

Given such improvements, he continued, Bush saw fit to lift the tariffs now -- more than a year before they were scheduled to expire. “And safeguards are not supposed to be permanent. They provide a helping hand in extraordinary circumstances,” he added.

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Thomas J. Usher, chairman and chief executive of U.S. Steel Corp. and an organizer of a campaign fund-raiser for Bush in Pittsburgh on Tuesday, said the president’s decision would “only make it harder to deal with the underlying problems distorting the global steel market.”

“Without the discipline of these tariffs in the U.S. market, it will be much more difficult to get our trading partners to seriously address the subsidies and other unfair practices that have plagued the global industry for decades and that have led to hundreds of millions of tons of excess capacity,” Usher said. He added that he was encouraged by Bush’s pledge to monitor and respond quickly to unfair foreign subsidies.

Daniel R. DiMicco, vice chairman, president and chief executive of North Carolina-based Nucor Corp. and chairman of American Iron and Steel Institute, which represents steel manufacturers, also reacted negatively to the lifting of tariffs.

“Given the industry’s dramatic consolidation and restructuring efforts, and the considerable debt that steel producers incurred as part of that process, it is disappointing for the president to pull the program when it is little more than halfway through,” he said.

Rep. John M. Spratt Jr. of South Carolina, the top Democrat on the House Budget Committee and a supporter of the tariffs, accused Bush of ending the tariffs prematurely and said he “broke a promise” to steelworkers. Sen. George Voinovich (R-Ohio) also rued Bush’s action, saying the tariffs had just “begun to work.”

Sen. Rick Santorum (R-Pa.) called Bush’s decision “a mixed bag” for his state, noting that Pennsylvania apple growers would have been hurt in a trade war. Rep. Robert W. Ney (R-Ohio) called on the president to do more to protect American workers from unfair foreign competition.

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Bush’s decision won praise from such groups as the Assn. of Home Appliance Manufacturers, which had complained about increases in steel prices because of the tariffs.

On Capitol Hill, free-trade advocates and lawmakers from steel-consuming states also lauded the end of the tariffs. Sen. Charles E. Grassley (R-Iowa) praised Bush for sidestepping a potentially damaging trade war that would have slowed the nation’s economic recovery.

“Free-trade principles shouldn’t be sacrificed for a small and short-term political gain,” added Rep. Jeff Flake (R-Ariz.).

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