LARRY ELLIOTT | Friday
SOUTH Africa has escaped United States tariffs of up to 30% on imported steel as it is classed as a developing country that exports only small amounts of steel to the US.
Disastrous. Unacceptable. Deplorable. Regrettable. Wrong. President George W Bush has been left in no doubt as to what the rest of the world thought of his decision to slap tariffs on steel imported into the US.
And with good reason. Bush has risked a global trade war, embarrassed his political allies, poisoned attempts to launch a new round of trade talks and undermined the credibility of the multilateral trading system in order to pay off political debts to big business and perhaps win a couple of key states in the November mid-term elections. He may not even achieve that.
What Bush has done is expose the hypocrisy that underpins the international trading system. Ever since September 11, the talk has been about making globalisation work for the poor. We now know – if we were ever in any doubt – that the reality is about how to make globalisation work for the rich.
The ramifications of Bush’s ill-judged move could be immense. For a start, the economics don’t stack up. It will raise costs for the rest of US industry, it will not save a single job in Pennsylvania or Ohio and it will hold back recovery from the first synchronised global downturn in more than 25 years.
It should be obvious to the White House that the rest of the world will only be able to buy American goods if they can sell into the US market.
Already, there are signs of escalation. Europe’s steelmakers are demanding instant retaliation and Moscow said the steel tariffs could affect relations between the two countries. Nor has it taken long for other sectors of US industry to wake up to the prospect that Bush has taken the lid off the pork barrel.
It was noteworthy that General Motors was on Wednesday talking of excess capacity in cars. If the US government can protect steel, then why not the motor industry? And if Detroit is to be protected, then why not the garment industry of South Carolina?
The impact on the multilateral trading system, still in intensive care as a result of the anti-globalisation backlash of the past three years, will also be profound. Washington and Brussels acted in concert last November to launch new trade liberalisation talks in Doha, cynically called a “development” round.
Many US industries – from Hollywood to the computer titans of Silicon Valley – want those talks to succeed, but the chances of an agreement any time soon have now receded drastically. Bush has cut the ground from under Pascal Lamy, Europe’s trade commissioner, who has done his best to be conciliatory and constructive in his dealings with the US. Washington’s stock of goodwill in developing countries was already tiny. It is now non-existent.
If Lamy has every reason to feel let down, then so too does British Prime Minister Tony Blair, who has found that providing full-throated backing for the US in its fight against terrorism counts for nothing when set against the interests of powerful vested interests in America. Blair is like the faithful family retainer who, after years of service, asks for a day off to see a sick relative, and is greeted with utter disdain.
There are silver linings to this cloud. The first is that it has underlined the importance of a multi-lateral trading system. However flawed as an institution the World Trade Organisation might be, there is at least a body to which the rest of the world can appeal for legal redress following the US decision.
The second is that Bush has now illustrated that the real issue is not free trade but fair trade. Free trade is a myth.
Winning friends and alienating others
UNITED States President George Bush has infuriated America’s trading partners by imposing tariffs on steel imports.
MARK TRAN
explains.
What did the Bush administration do?
Bush imposed tariffs ranging from 8%to 30% on various kinds of steel, claiming that US producers need time to “compete on a level playing field” after 50 years of government subsidies to foreign competitors. The tariffs will be phased out in three years.
Are American steel producers hurting?
The US steel industry has been in decline for decades, but its plight has worsened in the last five years because of a rise in imports and a steep fall in prices. About 30 steel makers, mostly older companies such as Bethlehem Steel and LTV Corporation, have gone bust with 20 000 jobs lost. But modern, so-called mini-mills have also run into difficulties.
Are foreign subsidies the problem?
To a very limited extent. More to the point, US steel producers have been hurt by the strong dollar. The older companies have also brought problems upon themselves. In better times management caved in to union demands for generous retirement and health benefits that have been increasingly unsustainable with a shrinking workforce.
So why did Bush impose tariffs?
Mostly for political reasons. Steel producing states in the Midwest and West Virginia are swing states that could have a crucial bearing on the November midterm elections. The Bush-Cheney team scored an upset in West Virginia in the closely contested 2000 presidential election by promising to support steelworkers and wants to keep West Virginian support. Republican political strategists believe that as many as six House seats hinge on Bush’s decision on steel – exactly the number the Republicans need to keep control of the chamber.
Who will be affected by the US decision?
While short of the 40% tariff US steel companies sought, the move will prevent billions of dollars worth of steel from the European Union, South Korea and China being sold in the world’s largest market. European companies that will be hit include Thyssenkrupp, newly formed Arcelor and Britain’s Corus.
How does this affect the steel market?
The US decision undercuts talks in Paris aimed at reducing the world glut of steel. The EU had said it would only agree to production cuts if the US held back on tariffs.
How big is the steel market?
The world trade in steel is valued at $80-billion. Total US steel imports peaked at 34-million tons in 1998 and fell to about 25-million tons in 2001. US tariffs affect 20-million tons of steel imports, worth about $8,6-billion in 2001.
How does this affect world trade?
It will sour relations between the US and its trading partners. The EU and most other world steel producers will almost certainly challenge the measures at the World Trade Organisation (WTO), but even if that challenge succeeds, it is likely to take at least two years to force the US to change its policies.
Is there a threat of a wider trade war?
The WTO is due to rule in a month on an unrelated case concerning US tax subsidies in which the EU has threatened to levy $4-billion of retaliatory sanctions against US exports. The EU has not explicitly linked that case to the steel dispute, but the severity of the American decision can only raise tensions.
Will the EU retaliate?
The EU has threatened to impose tariffs of its own to keep out a surge of steel imports that will be diverted from the US. If the row over steel escalates, it could reverse the momentum for world trade liberalisation created by the launch of a new trade round at Doha in November.
Isn’t Bush supposed to be a free-trader?
During the presidential campaign, Bush said: “Those who shut down trade aren’t confident.” But the US is pro-free trade in areas where it is strong (financial services, hi-tech and agriculture), but less so where its industries find it hard to compete, such as textiles and steel.
Was the Bush decision a big change in trade policy?
The move to impose tariffs on steel imports marks a sharp change of tack. In the past 15 years, the US has pushed for more open markets to help American companies, this time Washington is resorting to protectionist measures.