U.S. Steel Tariffs Could Erode Anti-Terror Coalition

Hefty U.S. tariffs on steel imports may shore up American Rust Belt producers and Republican election chances, but they appeared to backfire with key allies Wednesday, provoking trade conflicts and possibly undermining support for the U.S.-led war against terrorism.

Although Russia angrily invoked a ban on imports of all U.S. poultry products, the American trade action could prove more costly on the security front than in economic terms.

British Prime Minister Tony Blair, the sole European leader to voice support for Pentagon plans to target Iraq in the American-led global anti-terror campaign, had urged President Bush to reconsider the action for fear it could trigger retaliation and further damage the U.S. image abroad. On Wednesday, Blair called the tariffs “unacceptable and wrong.”

From Seoul to Stockholm, those whose sales will be hurt by the measures accused Bush of putting Republican Party interests in a handful of traditional steel-producing states above his stated commitment to international free trade.

European Union leaders announced that they will take the high road and refrain from imposing tit-for-tat sanctions on U.S. products. But EU Trade Commissioner Pascal Lamy blasted the tariffs as illegal, shortsighted and damaging to global economic and political stability.

The 15-nation EU is the world’s biggest steel producer and supplies a quarter of global steel exports to the U.S. market. The bloc will be hard-hit: Its high-quality exports will be assessed the maximum tariffs from a range of 8% to 30% announced in Washington on Tuesday.

“This U.S. decision is political, without any legal or even economic foundation,” Lamy warned, adding that the U.S. steel industry is in crisis because of its failure to modernize, not because of foreign trade pressures.

Nonetheless, Lamy said the bloc will refrain from reorienting trade policy to behave as in “the Wild West, where everyone does as he likes”--an apparent blast at what Europeans often call America’s cowboy capitalism.

As America’s chief ally in the war on terrorism, Blair had argued against the tariffs in writing and in a telephone call to Bush last week. Blair’s failure to deliver on the economic front provides fodder to his critics and weakens the prime minister as he tries to sell U.S. action against Iraq to a reluctant Europe.

Opposition Conservative Party leader Iain Duncan Smith accused Blair of failing to defend a national industry. “The prime minister always puts the interests of his friends ahead of the interests of his people,” the conservative said.

German Chancellor Gerhard Schroeder, facing a tough reelection campaign this year and increasing popular resistance to Berlin’s participation in anti-terror military actions, called the tariffs “totally unacceptable.” Economics Minister Werner Mueller warned of “a significant strain” on U.S.-European relations as a result of the tariffs.

French President Jacques Chirac criticized the tariffs as “protectionist,” and Italy’s deputy industrial minister, Adolfo Urso, demanded an EU appeal to the World Trade Organization and “instant measures to defend the EU market.”

Bill Morris, general secretary of Britain’s Transport and General Workers’ Union, said: “Britain and Europe stood shoulder to shoulder with the USA in the war against terrorism. European governments must now stand shoulder to shoulder in the U.S. war against our steel industry.”

Sweden also lashed out, with Foreign Trade Minister Leif Pagrotsky comparing the tariffs to a surprise assault on unsuspecting allies. Washington “has fired off its ammunition in this issue, and, completely unprovoked and without us having any part in this, they have attacked us in this war,” he fumed.

There were also calls in Asia for intervention. China expressed “strong dissatisfaction,” Japan and Australia warned that they would complain to the WTO, and South Korea, which exported 2 million tons of steel to the U.S. market last year, said it would use “all possible means” to fight the tariffs.

But it was here in Moscow that the loudest and most threatening reaction made clear that Washington would pay for its attempt to salve U.S. economic woes by shifting the pain abroad.

Steel accounts for one-tenth of Russia’s trade with the United States, and Russian officials appear to have reached their limit of perceived U.S. slights they can accept without losing face with their own economically strapped public.

Russians are still seething over doping and judging scandals at last month’s Winter Olympics in Salt Lake City that tarnished some Russian medal winners and disqualified others.

Moscow has been loudly skeptical of U.S. motives in expanding the war against terror, in which Russians have so far proved reliable if reluctant allies.

The Communist-dominated Duma, the lower house of parliament, railed against the tariff issue Wednesday, demanding retaliatory action as well as reconsideration of Moscow’s support for the anti-terror operation in Afghanistan.

A ban on imports of U.S. poultry that was to start Sunday was in effect imposed immediately when Russian customs authorities announced that they would clear no more shipments. Import licenses have been suspended, and the Russian Veterinary Services weighed in with a claim to have discovered salmonella contamination in nine U.S. poultry consignments inspected in St. Petersburg.

Moscow is the U.S. poultry industry’s most important customer, spending more than $600 million annually to buy half of all U.S. exports.

Russian Prime Minister Mikhail M. Kasyanov denied that the poultry ban was a quid pro quo for the U.S. steel tariffs, and Health Minister Yuri L. Shevchenko blamed the move on “dissatisfaction” with the quality of U.S. chicken products.

Economics Minister German O. Gref warned that Russia might pull out of all trade agreements with the United States unless the steel tariffs are rescinded or reduced.

“If this duty is fully imposed on Russia, we will not be able to export steel to the U.S., and in this case, we will likely pull out of the rest of the agreements with the U.S., as they would lose any sense,” Gref said, calling on Washington to “cool down” and work out a compromise.

Economic retaliation is virtually assured, political analyst Andrei V. Kortunov warned. But he noted that the more dangerous strain may be felt in the U.S.-led global security campaign if Russians feel that the Bush administration is hurting their economy to improve America’s.

“We can’t disregard a serious indirect danger every dispute like this may pose, given the lack of positive development in trade and economic relations,” Kortunov said. “Relations can’t be solid and stable if the political superstructure is not based on a serious economic foundation.”

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Williams reported from Moscow and Miller from London.