Bush to Impose Tariffs on Steel in Rescue Move
President Bush announced plans Tuesday to impose tariffs of up to 30% on imported steel products, a protective move that will ripple through the U.S. economy and roil domestic and international politics.
The rescue plan, which takes effect March 20 and phases out after three years, is designed to buy time for struggling U.S. steelmakers to retool themselves to compete more effectively against heavily protected foreign producers.
But it will do so by inflating costs for manufacturers and consumers of finished products from road graders to waffle irons and could wind up endangering more jobs in those industries than it preserves in U.S. steel mills.
“I take this action to give our domestic steel industry an opportunity to adjust to surges in foreign imports, recognizing the harm from 50 years of foreign government intervention in the global steel market,” Bush said in a statement.
Bush said his plan would not harm the U.S. economy. But administration officials acknowledged that it would cause steel prices to rise, perhaps as much as 10%. At least some of the increase will be passed to consumers in the form of higher prices on autos, appliances and other durable goods.
The political consequences are likely to be substantial. Bush’s decision is expected to improve the prospects of pending trade legislation in Congress and might influence the outcome of elections in key steel-producing districts. But it could anger steel consumers, alienate free-trade advocates and trigger retaliatory moves by exporting countries.
“President Bush, who pledged to lead the world to free trade . . . has departed from his principles to curry political favor,” said Jon Jenson, chairman of the Consuming Industries Trade Action Coalition, a Washington-based manufacturers group. Jenson said the tariffs and quotas constitute “a new tax on American manufactured products.”
EU Threatens to Erect Its Own Barriers
Bush’s intervention was condemned as well by government and industry officials in steel-exporting countries. The European Union said it would file an immediate complaint with the World Trade Organization and indicated that it might erect barriers to protect its own steelmakers until the matter is settled.
“The U.S. decision to go down the route of protectionism is a major setback for the world trading system,” EU Trade Commissioner Pascal Lamy said in a statement. “We will take whatever measures are necessary to safeguard our own market.”
Lamy said the action would scuttle ongoing negotiations among members of the Organization for Economic Cooperation and Development to voluntarily eliminate excess steel production capacity.
Bush’s plan will apply temporary tariffs of 8% to 30% on many categories of imported steel. It exempts steel produced by Canada and Mexico, America’s partners in the North American Free Trade Agreement, as well as imports from smaller developing countries.
It will hit hardest at big exporters, including Japan, South Korea, Germany, Brazil, China, Taiwan and France--each of which shipped more than $500 million worth of steel products to the United States last year.
The plan falls short of the 40%, across-the-board tariffs sought by U.S. steel companies, many of which are struggling to survive in an environment of depressed prices, chronic overproduction and cutthroat competition. Imports currently account for roughly one-fourth of overall U.S. steel consumption.
Over the last four years, 31 steel companies have entered bankruptcy proceedings. Most are aging, high-cost integrated producers, such as Bethlehem Steel Corp., that process iron ore into finished products. The administration’s plan is unlikely to restore them to profitability, but it could provide them with more breathing room to restructure and consolidate.
Newer, more efficient “mini-mill” operators, such as Nucor Corp., that recycle scrap metal also will benefit from the import restrictions. Industry analysts say the tariffs could enable them to expand operations and capture even more market share from the integrated companies.
The administration also rebuffed a request by the big companies to pick up a portion of the $13 billion in “legacy costs” associated with generous health and pension benefits they are obligated to pay their retirees.
Nonetheless, the decision was applauded by U.S. steelmakers and their supporters on Capitol Hill, particularly lawmakers representing Steel Belt constituents in Pennsylvania, Ohio, Illinois, Indiana, Maryland and West Virginia.
Industry advocates cautioned that the plan, by itself, may not be enough. “The American steel industry is drowning 40 feet offshore,” said Sen. Richard J. Durbin (D-Ill.). “The president has thrown them a 30-foot rope.”
Administration officials are gambling that the political benefits of coming to the aid of an embattled industry and its workers will outweigh the costs, which may diminish if the United States enjoys a robust economic recovery. But its calculations could go awry if prices soar, downstream job losses multiply or exporting countries embark on a trade war.
Globalization Seen as Detriment to Industry
U.S. Trade Representative Robert Zoellick said the rescue effort was consistent with the administration’s free-trade objectives and addressed some of the excesses of globalization.
“A lot of this change frightens people, and it leads to anxiety,” Zoellick said. “If we’re going to promote a free-trade agenda around the world and have support for it at home, we have to be willing . . . to help those industries that have really gotten flattened.”
A study by the nonpartisan Institute for International Economics in Washington estimates that a package of tariffs in the 20% range would cause the average price of imported steel to rise 6.6% and domestic steel 2.6%.
Peter Morici, former chief economist at the International Trade Commission, the U.S. government agency that recommended tariffs, said the extensive involvement of foreign governments in global steel production had distorted the forces of supply and demand to the detriment of U.S. steelmakers.
“In the steel market, the laws of economics don’t work,” said Morici, who now teaches international business at the University of Maryland. “The reality is this industry is not competing on a level playing field. They are really at a competitive disadvantage on account of government policy, not on account of economics.”
The protective tariffs and quotas are being imposed under a trade law provision known as Section 201, which allows the government to erect trade barriers if a domestic industry is threatened with serious injury as a result of rising imports.
During the 2000 presidential campaign, Bush promised to protect U.S. steelmakers and their workers from unfair foreign competition, and he initiated the Section 201 process after taking office. The U.S. International Trade Commission conducted an investigation and concluded that protective measures were justified.
Biggest Levies on ‘Flat Products’
“We’re a free-trading nation,” Bush told reporters after a meeting with Egyptian President Hosni Mubarak. “In order to remain a free-trading nation, we must enforce the law, and that’s exactly what I did.”
The biggest tariffs, 30% of the import price, will be applied to cold-rolled, plate-rolled and coated sheet steel, the “flat products” that account for the largest share of the domestic steel market. Imports of bar and tin mill steel also will be subject to 30% levies.
Imported slab, a semi-processed product that is transformed into finished steel by “re-rollers” concentrated on the West Coast, will be subject to a tariff-rate quota that would impose a 30% levy only if annual imports exceed 5.4 million tons. Slab imports totaled 5.7 million tons last year, suggesting that re-rollers will be largely exempt.
Smaller tariffs of 15% will be imposed on steel tube, bar, rod and rebar, 13% on fittings and flanges and 8% on stainless steel wire.
The effect of the trade barriers on average steel prices is expected to be much smaller than the amount of the tariffs. Foreign producers are likely to absorb a sizable portion of the import levy, and domestic companies risk losing market share if they try to boost prices aggressively.
Although estimates vary, studies by industry experts have suggested that average steel prices are likely to rise no more than 5% or so.
The trade barriers would prevent the loss of about 3,500 steel industry jobs, the Institute for International Economics study said, but at a cost to consumers of about $2 billion, or more than $500,000 per job saved. The beneficial effect could be more than offset by job losses in downstream manufacturers, whose production tends to decline when prices rise. Affected industries include cars, trucks, farm equipment, industrial machinery, home appliances, furniture and fixtures.
Gains Could Override Losses in U.S.
The overall effect on the U.S. economy is expected to be relatively small because losses in one area would largely be offset by gains in another.
“In relation to the size of the U.S. economy, it’s not a huge thing,” said Ben Goodrich, co-author of the study. “It’s not a good idea as you’re trying to emerge from a recession, but it’s probably not going to keep you from emerging.”
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Times staff writers James Gerstenzang and Nick Anderson contributed to this report.
