None of this is quite fair. First, a trade war occurs when a tiff over a single product spills over into other industries. But the United States and its partners are already in dispute over beef fed with growth hormones, European aircraft subsidies and U.S. export subsidies, among other things. No broader war has developed. Few believe this one will go beyond steel either. “Instead of a trade war,” says Ben Goodrich of the Institute for International Economics, “it’s going to be follow the leader. Everybody’s going to increase protection of their own [steel] markets.”
The damage will be limited. Trade in steel has been a nightmare of nationalism for 100 years, perhaps the most heavily protected industry there is. Historically, the United States is among the lesser offenders. It’s the only large rich country that’s ever been a major steel importer, and it has been one for 40 years. Europe, Japan and other big steel exporters have less free-trade ground to stand on than Bush. That will not, and should not, stop any of them from challenging the Bush tariffs before the World Trade Organization. But it will likely prevent them from escalating the fight.
The European legal case looks pretty strong. Bush based his tariffs on well-established trade rules that allow nations to temporarily protect industries and communities hard hit by a sudden spike in imports. There is no question that American steel mills were devastated by a 40 percent jump in imports following the 1997 crash of Asian and Russian economies. Thirty U.S. mills are now in bankruptcy. The legal problem for Bush is that these old U.S. mills have been in decline for decades, owing largely to dated technology and competition from more modern, and mostly American, mini-mills. Moreover, the import spike is history. Imports have been falling since 1999, undercutting the U.S. justification for “safeguard” tariffs now.
It’ll take more than a year for the WTO to return a verdict. Meanwhile the French, British and the EU have already announced that they are preparing safeguard actions of their own. They intend to prevent Asian and Latin steel blocked from U.S. markets from slopping over into theirs. This may sound like a transatlantic war spreading to other fronts, but it’s not.
Europe permits the import of very little steel now, anyway. Indeed, Europe and other export countries have woven a maze of secret cartels that produce astonishing results. One of these is “the Burmese line.” Under this informal deal, Europeans agree not to sell steel in Japan and South Korea, and very little east of Burma, and the Japanese and South Koreans in turn agree to stay out of Europe.
The real problem is not trade barriers. It’s that the bloated industry can produce 230 million more tons of steel than the world can consume each year. Last year the major steel-producing nations negotiated voluntary cuts in capacity, but little has actually been done. Paradoxically, if Bush’s tariffs force major exporters to cut back capacity, it would help bring supply into better balance with demand, reducing the protectionist pressures that lead to tariffs in the first place.
Understandably, U.S. trade partners don’t buy the Bush defense, which is that he has to protect the U.S. steel industry in order to lead the world-trade regime. But consider. The U.S. Congress and public are already deeply skeptical of free trade, and unless Bush protects the nation’s most troubled heavy industry, that hostility will grow. And without approval from the U.S. Senate, Bush will not get the “fast track” authority he needs to lead the trade talks launched in Doha. No doubt it is protectionist to defend the dying steel industry with tariffs. But it’s also true that there will be no global trade leadership without them. Not from George W. Bush, anyway.
