Playing Chicken With Steel Imports
The Bush administration is expected to impose new tariffs to shield U.S. steel companies from overseas competition, but it will try to avoid a broader trade war with irate allies.
President Bush has not announced details of his plan on the steel issue. But the administration made it clear Monday that it intended to impose some combination of tariffs and quotas to give the ailing U.S. steel industry more time to consolidate and restructure.
The first skirmishes in a trade war already have occurred. On Sunday, Russia will begin blocking imports of U.S. poultry, a move sought by Russian steelmakers. Brazil, meanwhile, warned Monday that the Bush rescue plan could prompt retaliatory actions, and officials in Europe and Japan said they would consider filing challenges with the World Trade Organization.
At the same time, an administration official said, efforts were underway to address the concerns of trading partners “who may not like everything that we announce” and who have the ability to strike back. “They’re going to have recourse in other venues,” said the official, who requested anonymity.
There are practical limits to the scope of any global backlash. WTO members can ask the group to review the U.S. trade restrictions, but they are not supposed to engage in tit-for-tat retaliation. Although Russia is not a WTO member and is not bound by its rules, it wants to join the group and may be reluctant to push the issue too far.
“Other countries are not going to just roll over and take this lying down,” said Ben Goodrich, a trade expert at the Institute for International Economics in Washington. “But the mechanisms for direct retaliation are either illegal or frowned upon.”
Some U.S. trading partners may attempt to influence the administration in more subtle ways. Europe, for example, has not yet decided how much compensation it will seek under a WTO ruling that a U.S. tax break for businesses with overseas operations amounted to an illegal subsidy. Brazil’s cooperation is essential to the administration’s campaign to create a Free Trade Area of the Americas. Europe and Japan are big players in a newly launched round of global trade talks.
The administration’s damage-control operation reflects the political and economic complexity of the steel issue and the difficulty of crafting a response that assists the industry without alienating other powerful constituencies.
In October, the U.S. International Trade Commission ruled that imports have severely injured the U.S. industry, which has struggled for years to compete with foreign producers that benefit from lower costs and government subsidies.
The problem has become particularly acute since the 1997 Asian financial crisis, which caused an import surge. During the last four years, more than 20,000 U.S. steel industry jobs have been eliminated, and 31 companies have entered bankruptcy proceedings.
How Bush responds to the industry’s travails could have big political repercussions. Major steel-producing states, such as West Virginia, Pennsylvania and Ohio, are viewed as key swing states in the 2004 presidential campaign.
Members of the International Trade Commission’s governing board recommended an assortment of tariffs and quotas to restrict steel imports to the U.S. and boost prices in 16 product lines. Bush can accept, reject or modify their recommendations as he sees fit, but he is required by law to announce his response by Wednesday.
Administration officials have signaled in advance that they will not impose the across-the-board, 40% tariffs sought by U.S. steelmakers. Nor do they plan to have taxpayers pick up the “legacy costs” associated with generous pension and health benefit programs created in better days by now-bankrupt firms.
Bush is expected to impose tariffs, perhaps exceeding 20%, in some product categories. And that would be enough to antagonize U.S. trading partners such as Russia, a major steel producer and the world’s biggest poultry importer.
The Russian government said that as of Sunday, it would begin banning imports of U.S. poultry. It attributed the action to concerns about the use of potentially carcinogenic disinfectants by U.S. processors. But the announcement came only two days after Russian steelmakers asked Moscow to block U.S. chicken imports if Washington erected big barriers to Russian steel.
A Russian trade official insisted Monday that there was no linkage between the two issues. But he acknowledged that the poultry ban by “coincidence” might affect the kind of restrictions Bush assigns to Russian steel.
“I think maybe it would have some impact,” said Aleksey Yegortsev, a representative of the Russian Trade Mission in San Francisco. “Russian steelmakers are suffering from American laws.”
The ban would have serious implications for the U.S. poultry industry, which employs more people than does the steel industry. Russia is the largest foreign buyer of U.S. products, accounting for more than a third of exports and 8% of total production, according to the National Chicken Council.
Industry officials said a prolonged ban would force processors to cut back production, which could lead to the loss of some of the industry’s 300,000 jobs.
“Russia is an important customer,” said Ed Nicholson, spokesman for processor Tyson Foods Inc. “Our industry has worked and will continue to work closely with the U.S. Department of Agriculture to address recent issues raised by Russian officials, but it appears our products have become part of larger trade discussions.”
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Vieth reported from Washington, Fulmer from Los Angeles.
