President Bush imposed temporary quotas yesterday of up to 30 percent on most imported steel in an effort to give the ailing U.S. industry a chance to modernize and restructure.
The action was a rare departure for an administration that has championed free trade both at home and abroad. But the president said it was an appropriate exception in the face of years of unfair trading practices by foreign countries that had "resulted in bankruptcies, serious dislocation and job losses" in the United States.
Industry executives, union leaders and politicians from steel-producing states generally hailed the president's decision, which fell somewhat short of what they had requested but was still the most aggressive action taken by a president to protect a domestic industry from imports since Ronald Reagan imposed steel import restraints in the mid-1980s.
"This is keeping us alive, no question about it," said Rep. Robert W. Ney (R-Ohio), who warned the White House that he might have to vote against free-trade legislation the next time it came up in the House unless something was done to provide relief to steel communities in his district.
"I commend the president for taking this step," said Leo Gerard, president of the United Steelworkers of America, which turned out thousands of members on the Ellipse outside the White House. "I'm not sure it will do all that needs to be done to save the industry, but at least we have a ray of hope."
Not all of the steel industry's allies, however, were fully satisfied. "President Bush deserves credit, but we have to put it in perspective," said Sen. Richard J. Durbin (D-Ill.). "The steel industry is drowning 40 feet offshore; the president has thrown them a 30-foot rope."
The president's decision was a blow to steel-consuming industries -- such as makers of auto parts and home appliances -- which conducted a furious lobbying campaign to dissuade him from adopting the tariff recommendations of the U.S. International Trade Commission. They argued that any tariffs would not only amount to a tax on consumers but would cost more jobs in their industries than would be saved at U.S. steel mills -- a prediction that even one top administration official acknowledged was probably correct.
"This remedy, like all the other attempts to protect the U.S. steel industry over the years, will not save fundamentally mismanaged companies," said David Phelps, president of the American Institute for International Steel, an import group.
Indeed, most industry executives acknowledge that while the tariff regime may keep several thousand steelworkers employed for a couple of years, it will not be able to save all of the old-line integrated steel mills that make steel from iron ore in coal-fired furnaces. These integrated mills are at a competitive disadvantage not only because of the older technology they use to produce steel but also because of the added costs of paying a unionized workforce and more than half a million retirees who get pensions and health benefits from the companies.
Even before the surge of imports that began in 1998, the integrated mills had been steadily losing market share to more modern, nonunion minimills that make steel from recycled scrap. Many of the larger integrated mills, including Bethlehem Steel and LTV, are already under bankruptcy protection. Industry officials warn that further corporate consolidation and plant closings in the steel industry are inevitable, even with the temporary tariff protections.
"The restructuring process is well underway," said Dan Dimicco, president of Nucor, the largest minimill company. "These tariffs won't relieve the pressure on the least-efficient producers."
For that reason, the integrated mills and the steelworkers unions said yesterday that they would continue to push the federal government to assume some of those "legacy" costs with the money raised by the tariffs. The president rejected such a proposal, both because it was opposed by the minimills and because it would invite similar bailout requests from other industries. But there will almost certainly be a push for it in Congress.
"The long-term viability of the steel industry is going nowhere without a bill about legacy costs," said Sen. John D. "Jay" Rockefeller IV (D-W.Va.) who intends to introduce such legislation in the next few weeks.
The legacy cost issue is particularly important in steel towns where retirees outnumber active workers by as many as 10 to 1. While the federal government will insure most of their pensions should companies go bankrupt, there is no backstop for health benefits, particularly for former steelworkers who are not old enough to qualify for Medicare.
"To save the industry and discard the retirees is not acceptable," the steelworkers' Gerard said.
Administration officials said the purpose of the tariffs is to encourage U.S. companies to shift, at least temporarily, from buying foreign steel to U.S. steel, in the process raising prices in the U.S. market from their 20-year lows. The tariffs are set to decline in the second and third years, subject to a review after 18 months by the president.
Not all steel products are covered by the 30 percent tariffs. Most steel bar products -- the bread and butter of the minimills -- will be subject to only 15 percent tariffs, as will stainless steel rods and wires. Steel slabs, which are imported by U.S. mills that roll them into other products, will not be subject to any tariff unless imports from any country exceed levels of the year 2000, at which point the 30 percent tariff kicks in.
Private economists predict the tariff regime will increase domestic prices by 6 percent to 8 percent in the first year. If fully passed on to consumers -- not a sure thing by any means -- that would raise the price of a $30,000 car by about $50 or a washing machine by fewer than $5. Such increases are probably not enough to substantially affect sales.
Ben Goodrich and Gary Hufbauer, economists at the Institute of International Economics, estimate that overall, the 30 percent tariffs will cost U.S. consumers more than $8 billion, which would only partially be offset by the added profits and employment in the steel industry.
Final details were still being worked out as late as Monday evening as administration officials made additional concessions to win supporting statements from union and industry officials. White House political aides considered those statements crucial in giving the president the political boost he had sought from the decision in the crucial swing states of Ohio, Pennsylvania and West Virginia.
Administration officials said Commerce Secretary Donald L. Evans served as a bridge between Bush's political advisers, who pushed for high tariffs, and his economic team, which argued that he should keep his free-trade credentials pure. Evans, along with U.S. Trade Representative Robert B. Zoellick, argued that the only way to maintain support for free trade on Capitol Hill was to use moderate tariffs to show that free trade could be made to work for American workers as well as consumers.
As expected, the tariff order was immediately criticized by leading steel-producing countries. European officials warned that the action could force them to impose similar tariffs, while Russia said it would have a "serious impact on the atmosphere of relations" between the two countries. An appeal to the World Trade Organization appeared inevitable, although world trade rules allow countries to impose temporary measures to protect themselves against surges in imports.
At the same time, the decision was welcomed by Canada, Mexico and most developing countries, all of which would be exempt from the tariffs under the president's order as long as their steel exports to the United States do not significantly increase over current levels.
At a White House briefing, Zoellick said that as a free-trader he had no qualms about defending the tariff regime before trading partners who, over several years, had aggressively protected their own steel companies with subsidies and trade barriers.
"This is a strong message to the rest of the world that we're going to take care of our people and give them a chance to compete," Zoellick said.
Staff writers Paul Blustein, Juliet Eilperin and Mike Allen contributed to this report.