Trade war looms as US steel tariffs urged
By Edward Alden in Washington
Published: December 7 2001 18:46 | Last Updated: December 7 2001 22:02
The outbreak of a new steel trade war looked certain as the US was urged to impose steel import tariffs of between 20 and 40 per cent to its battered industry.
The International Trade Commission, an independent US agency that rules on import restraints, on Friday recommended President George W. Bush impose such tariffs for up to four years to give the steel industry time to consolidate, restructure and restore itself to profitability.
The final decision remains up to Mr Bush, but the administration will face enormous political pressure from steel industry supporters in Congress to follow the ITC recommendations.
Legislators with strong steel interests helped deliver many of the critical votes for fast-track trade negotiating authority, which passed the House of Representatives by a single vote this week.
The US industry, which now has 25 companies operating under bankruptcy protection, wants 40 per cent tariffs on nearly all steel imports. In addition, it wants revenues from those tariffs, which would amount to about $1bn a year, to be distributed to US steel companies.
Three of the six ITC commissioners recommended an additional 20 per cent tariff on imports of flat-rolled steel, the largest steel product, while two recommended 40 per cent duties. Mr Bush has until February 19 to make his final decision. The ITC action was launched by the Bush administration earlier this year to help the ailing industry and appease powerful steel-state legislators.
The threat of substantial duties could strengthen the administration’s hand in persuading other countries to reduce their steelmaking capacity.
Negotiations in the Organisation for Economic Co-operation and Development are set to resume next week. But new tariffs would anger other steel-producing countries, which would lose US markets and face further competition from steel diverted from the US.
The steel industry says that it needs relief from imports to allow restructuring that would again make the industry profitable. US Steel, the country’s largest steelmaker, this week launched talks with other steel producers that could lead to mergers, plant closures or other moves to cut domestic steel capacity.
Even a 40 per cent tariff, however, would provide only limited relief. A study funded by the domestic steel industry predicts that US steel prices would rise only 10 per cent on average, because imports have fallen 25 per cent this year and domestic steelmakers have substantial unused capacity.
The industry lost $1.4bn in the first half of 2001. A 40 per cent tariff would increase industry revenues by $2.2bn, the study predicted. If the administration also agreed to give tariff revenues to the companies, which would be unprecedented, the industry would then earn an average profit of roughly 5 per cent.
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