Will Bush Bend on Steel?

With the WTO ruling his tariffs illegal, he's caught between easing anger with European partners or sparking it with heartland voters

By Paul Magnusson

As if post-war Iraq and the jobless recovery weren't enough, President Bush now has another dilemma on his hands that could hurt his reelection prospects next year: The final decision on Nov. 10 by a World Trade Organization declaring U.S. tariffs on imported steel to be illegal under international trade law.

If Bush complies with the decision and does away with the levies, the U.S. will escape retaliatory tariffs the Europe Union has threatened to impose on $2.2 billion of politically sensitive U.S. exports, such as Florida orange juice, Wisconsin Harley-Davidson (HDI ) motorcycles, and clothing from the Carolinas. The WTO has ruled that these punitive countermeasures are legal if the U.S. holds its ground on steel.


  By lifting the U.S. tariffs on foreign steel to comply with the ruling, however, Bush risks angering towns throughout Indiana, Ohio, Pennsylvania, and West Virginia for caving into pressure from the Geneva-based WTO. "The WTO has a long history of slapping America and its workers in the face," grouses Representative Pete Visclosky (D-Ind.). And Bush's reelection could hinge on support in these key battleground states next year -- with the exception of the Keystone State, he carried all in his disputed 2000 victory.

If the President goes along with the WTO ruling, he'll cool the growing enmity over trade matters between the U.S. and Europe, which is essential if the two economic giants are to lead the 148-member WTO to a successful conclusion of a new global free-trade agreement by its 2005 deadline. On the other hand, he's likely to alienate many in Congress who have been critical of the WTO for its repeated rulings against the U.S. and its highly secretive procedures and deliberations. The Administration's failure to reform the WTO "is seriously jeopardizing continued support in the U.S. for the world trading system," says Representative Sander Levin (D-Mich.)

No matter what, Bush's reputation as a free trader has taken a severe hit. Lack of support in Congress for further trade liberalization would put an end to some of the Administration's most ambitious economic undertakings: a free-trade zone throughout the Western Hemisphere and bilateral deals with Australia, Morocco, Bahrain, Thailand, and the nations of Southern Africa and Central America. The irony is unmistakable. The President's steel tariffs, issued in March, 2002, were considered crucial in persuading Congress to grant the White House trade-negotiating authority. The bill squeaked through the House by only one vote.


  Lifting the tariffs would also hurt the President's plans in other ways. The fees persuaded the major steelmaking nations to convene in Paris for a series of meetings to reduce government subsidies for steel, which have led to global overcapacity and artificially low world prices. With the steel tariffs off the table, the Paris negotiations may break down.

So far, the betting is that sometime in late November or early December Bush will lift the tariffs, which have run more than half their three-year course and have helped the U.S. steel industry undertake a massive restructuring campaign. That will test U.S. steelmakers' success in improving operations.

The decision won't please many, however, and isn't likely to earn the Administration any additional support on trade policy or in the coming election.

Magnusson covers trade from BusinessWeek's Washington bureau

Edited by Douglas Harbrecht

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