Bush cancels tariffs on steel

Presidential decision deplored by producers

21-month `breathing space'

Trade war avoided

impact could affect re-election bid

December 05, 2003|By Bill Atkinson and Lorraine Mirabella | Bill Atkinson and Lorraine Mirabella,SUN STAFF

President Bush moved yesterday, as expected, to lift tariffs designed to protect the U.S. steel industry from foreign competition.

While the industry condemned the decision, some experts said steelmakers could thrive over the next several years without help from the tariffs, propelled by a strengthening economy, more efficient operations and a weakening dollar, which has made steel imports more costly.

If the steel industry does thrive, it could take the sting out of yesterday's controversial decision and win Bush votes in pivotal steel-producing states as he wages his re-election campaign next year.

Yesterday, Bush said the tariffs have given the steel industry 21 months of "breathing space" to restructure their operations, negotiate new labor contracts and lower production costs.

"These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances it is time to lift them," Bush said in a statement.

His political gamble was seen as necessary to pacify industries here that buy steel and have complained about high prices. It also defused a potentially damaging trade war with the European Union, Japan and China, which threatened to slap tariffs on products manufactured in key political states, such as Florida.

The biggest winners could be consumers, experts said.

Consumers have paid higher prices for products made from steel, but prices should rise more slowly, said Sung Won Sohn, chief economist at Minneapolis-based Wells Fargo & Co.

"Prices on consumer products will either go down or not go up as much as otherwise," Sohn said. "Everything from automobiles to bicycles will probably benefit from the lifting of the steel tariff."

Bush vowed to continue to require companies that want to send foreign steel into the United States to obtain licenses and said the administration will monitor them and quickly respond if imports surge. He also said he will work to reduce subsidies that foreign governments grant their own steel producers.

Bush's decision to lift the tariffs angered steel industry officials and politicians in states where it is produced. They charged the administration with selling out the industry and caving in to pressure from the European Union and Japan.

"We've been threatened and blackmailed and bullied by the EU and Japan," Leo Gerard, president of the United Steelworkers of America, said in a conference call with reporters. "What we've told the world today is, `You're welcome to abuse us and abuse our trade laws.'"

West Virginia Democratic Sen. Robert C. Byrd said the Bush administration "shattered any credibility it ever had with the steel industry in West Virginia and across this country."

Thomas Usher, chairman and chief executive of United States Steel Corp., said he was disappointed with the decision. "We're very concerned, not just for steel but for manufacturing in general," he said. "If the economy grows and imports stay down, we've got a good environment. The concern is illegal imports come flooding into the country and pricing goes south."

Others applauded the decision, saying it will help the economy and benefit consumers.

William Gaskin, chairman of the Consuming Industries Trade Action Coalition Steel Task Force and president of the Precision Metalforming Association, said manufacturing jobs will be protected.

"It will have a positive impact on U.S. manufacturing companies that use steel to produce parts and end products, and it will help make them more competitive," Gaskin said. "The steel industry has benefited from 21 months of tariffs and is in a better position today to compete."

The political fallout is impossible to predict, but Peter Morici, professor of international business at the University of Maryland, believes Bush put his presidency in jeopardy by flip-flopping on the tariff.

"There are a lot of retired steelworkers in Florida [where Bush nearly lost in 2000] who have very strong sentiments on this subject," Morici said. "Now, he is going back on his word. Bad. Bad. Not good for a president to break their word to blue-collar workers."

Morici said Bush's margin for error is small in steel-producing states that include Illinois, Indiana, Michigan, Ohio, Pennsylvania and West Virginia. "He has got to win three of those states or he is not president," Morici said.

Morici worries that the industry will suffer as a result of Bush's decision, but others said the industry could flourish in the aftermath.

The reason: The economy is starting to hum, which means more steel will be needed for a wide range of products, including cars, washing machines, refrigerators and building materials.

"The No. 1 thing that drives the steel industry is the state of the overall economy," said Brink Lindsey, director of the Cato Institute's Center for Trade Policy Studies, a Washington-based free-market think tank.

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