Bush Rescinds Tariffs on Steel

Trade War Averted; Industry Angry

U.S. Trade Representative Robert B. Zoellick, left, listens to White House press secretary Scott McClellan read the president's statement. (Robert A. Reeder -- The Washington Post)

President Bush yesterday revoked the steep tariffs he had imposed on imported steel, averting a potential trade war with Europe and Asia but risking a political backlash in steel-producing states that could be key to his reelection.

The action, although expected, marked a rare about-face for an administration not noted for reversing course. And it brought angry reactions from labor unions and executives in the steel-producing states of West Virginia, Ohio and Pennsylvania, all of which were closely contested in the 2000 presidential election and are expected to be battlefields in 2004.

The tariffs, which were as high as 30 percent when imposed 21 months ago, were lifted at midnight, 15 months before their scheduled expiration. Bush said the tariffs had done their job, stemming a flood of cheap steel imports long enough to allow U.S. producers to consolidate and get back on their feet.

In a written statement read by his press secretary, the president also noted that economic circumstances have changed markedly since the tariffs were imposed. Surging demand for steel has boosted prices, and a weakening dollar has made U.S. steel exports more competitive in the global market, administration officials said.

"I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods," Bush said. "These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances it is time to lift them."

Administration officials had signaled that the tariffs would be lifted as far back as mid-September. Bush's economic team had united in a push to lift them, arguing that they had cost more jobs among steel users than they had saved among steel producers. Even Bush's political advisers, who had been instrumental in imposing the tariffs last year, had concluded that they may have backfired politically. Then in November, the World Trade Organization ruled the tariffs illegal, allowing other countries to prepare to impose retaliatory tariffs this month.

Shortly after the White House announcement, the European Union withdrew its threat to impose tariffs on about $2 billion of U.S. exports.

The Commerce Department will closely monitor steel shipments into the United States and continue licensing imports, so the administration can react if there is a surge of cheap imports, Bush said. The president, however, offered no additional aid to the industry or its workers.

That elicited a sharp response from steel producers, which had hoped for more assistance or a phaseout of the tariffs rather than an immediate lifting. Publicly, steel officials were muted in their criticism. Thomas J. Usher, the chairman and chief executive of U.S. Steel Corp., who had just hosted Bush at a campaign fund-raiser earlier this week, said he was "delighted" to hear that the Commerce Department will "aggressively monitor" steel prices. In public comments, other steel executives were similarly understanding.

But privately, some of them were seething. One executive, speaking on condition of anonymity, said that the industry had decided to be polite but that the White House's plan to monitor imports offered steel makers virtually nothing.

"Good data is better than bad data. Fresh data is better than old data. But it's just data unless [Bush] has some commitment to do something with it," said one steel executive. "It's just going to let us know we're getting screwed earlier."

Leo W. Gerard, president of United Steelworkers of America, vowed to make Bush pay a political price for his "betrayal of American steel workers and steel communities."

"We're not going to give up," he said. "We're going to fight like hell for justice."

Mark Glyptis, president of the Independent Steelworkers Union, vowed that his union "will now work very hard to make sure George W. Bush joins the ranks of the unemployed next year."

Democrats lawmakers from steel states joined the outcry. Rep. Sherrod Brown (D-Ohio) promised that the decision will haunt Bush "every time he visits Ohio."

Rep. Robert W. Ney (R-Ohio), who had lobbied hard to preserve the tariffs, said that if the manufacturing sector continues to decline, Bush's decision to lift the tariffs could become a big factor in next year's election, but that a brightening economy and stability in Iraq could erase it from voter memories. Still, he conceded, Ohio "would have been more solid for him if he had kept them on. Ohio is in play."

Executives from steel-consuming industries -- who had pressed hard for the tariffs' lifting -- praised the White House action but were unsure about its political impact. The tariffs were imposed when machine tool makers, auto parts companies and metal forming firms were mired in a manufacturing recession, said Mike Lynch, a vice president at Illinois Tool Works Inc. near Chicago. They are being lifted when steel prices are as much as 30 percent higher than they were 21 months ago, so the immediate economic benefit to steel consumers may be minimal.

"I think it's going to be a mixed bag" for Bush, Lynch said. "For those who have suffered the most, who have been forced to take jobs offshore, been forced to close their businesses, been forced to take untenable positions with their customers, I don't think that's recoverable. For those who have been able to weather the storm and believe the president did what he felt was right so early in his administration, they're willing to forgive and move on."

The timing of Bush's decision puzzled even some administration officials. Earlier this fall, a review of the tariffs' economic impact by the International Trade Commission provided the administration's primary justifications for lifting them, showing that the steel industry had shed excess capacity, brokered groundbreaking labor pacts and become more internationally competitive under the tariffs' protection.

But the administration waited to act until after the WTO -- as anticipated -- ruled the tariffs illegal, opening Bush to a barrage of accusations yesterday that he yielded to foreign pressure. Gerard accused him of "capitulating to European blackmail."

"What we've now told the world today is, 'You're welcome to come abuse us, to come and abuse our trade law,' " Gerard said, because "we're going to cave in when you threaten to retaliate."

U.S. Trade Representative Robert B. Zoellick said yesterday that the decision was made independently of the threats of retaliatory tariffs.

Gary Clyde Hufbauer, an economist at the Institute for International Economics, expressed concern that Bush's actions may set back international trade liberalization by focusing so much political anger on the WTO. Republican tariff supporters did in fact avoid criticizing Bush, saving their denunciations for the world trade body.

"I respect the president's decision to accommodate the ill-conceived WTO ruling against the safeguard measure and avoid stiff retaliatory tariffs," said Rep. Phil English (R-Pa). "However, this entire process reveals just how badly broken the WTO dispute-resolution mechanism really is."

The decision to lift the tariffs may also have further confused world perceptions of Bush's trade policies, Hufbauer said. Just last month, the administration slapped import quotas on some Chinese textile imports, in what is widely seen as a first installment of actions against Chinese apparel, and this month, it is expected to take action against imports of Chinese bedroom furniture.

Zoellick portrayed the tariff decision in different terms. In the past 18 months, he said, the federal government had assumed $8.2 billion in pension benefits from 14 bankrupt steel companies. U.S. steel exports in August were 49 percent higher than they were a year earlier, and Bush had proven that he is willing "to help people that are knocked off their feet."

"You've got about 150,000 steel workers in this country, and they can thank this president for having a chance to compete in the future," he said.

Steelworkers responded with their own statistics: 225,000 steelworkers with lost health benefits, thousands more who have lost all or part of their pensions, the federal Pension Benefit Guaranty Corporation teetering under the weight of its new steelworker benefit responsibilities, and companies still on the edge of viability.

"I don't know what land [Zoellick's] living in," said David Gossett, a spokesman for the Independent Steelworkers. "I'm at a loss to see how they could spin this as a good thing. It's not a good thing."