Bush move to aid US firms rankles abroad

Tariffs, popular in Rust Belt, may spark trade war.

By imposing tariffs on many steel imports, the Bush administration is straining relations with key allies at a time when the US needs all the friends it can get to help fight the war on terrorism.

Although officials tried to soften the blow on sensitive allies like Russia, the wide-ranging steel decision could well spark furious international retaliation. Steel is a touchstone industry in many nations, and change in steel prices ripples quickly into many other sectors of the developed world's consumer economy.

If nothing else, the move puts the longstanding US push for a more open global marketplace at risk. "President Bush has made free trade a top priority and this [tariff action] is completely inconsistent. That's the most damaging part of this decision," says Aaron Schavey, a trade analyst at the Heritage Foundation in Washington.

The new Bush tariffs will be the most sweeping action taken by a White House in support of a battered old-line industry since the Reagan administration strong-armed some foreign competitors into voluntarily limiting steel and auto exports to the US.

But the complex nature of the decision means its impact will vary greatly, product by product, and nation by nation. The move imposes a range of quotas and tariffs for the next three years. Flat-rolled steel, for instance - a key component for the auto and appliance industry - will be subject to 30 percent duty in the first year, declining to 24 percent in the second year, and 18 percent in the third.

Rebar, stainless-steel rods, and other products will be hit with slightly lower tariffs, also on a declining schedule. Slab steel, which is reworked in the US into a range of products, will limited to an import quota of 5.4 million tons. Anything above that quota will be subject to 30 percent duty, in the first year.

Canada, Mexico, and developing nations will be exempt from the tariffs.

Administration officials said that they took the actions under legal provisions that allow a sort of timeout on import pressure for industries that have been damaged by foreign competition. The point, they said, was not to build a permanent barrier, but to allow the hard-pressed steel industry to rebuild.

"The international trade rules of the World Trade Organization recognize that sometimes imports, whether fairly or unfairly traded, can cause such harm to domestic industries that temporary restraints are warranted," said US Trade Representative Robert Zoellick at a White House briefing.

Whether the domestic steel industry can get its economic house in order in three years remains to be seen. Economists believe that the nation still has an excess capacity of old-line steel manufacturers - many of whom are weighed down with huge retiree and healthcare and pension costs.

Some 30 US steel firms have declared bankruptcy in the last four years.

Steel executives had been hoping for stiffer tariffs than Mr. Bush imposed. But they were not displeased with what they got. One group - union workers - may see the Bush action as at least an attempt to help. "It's about time somebody in Washington did something," says Dale Klunk, a former worker at the Laclede Steel Co. plant in Alton, Ill. "All the steel those foreign countries are dumping on us - they're eating our lunch."

Mr. Klunk worked at Laclede Steel for 25 years. Now he commutes more than an hour to a janitorial job in St. Louis that pays half of what he used to make at the mill, and provides no benefits.

"This tariff thing is too late for me," he says inside the all-but-vacant steelworkers' union hall in the shadow of the Laclede plant. "I just hope it saves somebody else's job out there."

Other nations have steel jobs, too, however, and will likely resent the impact that a unilateral US decision can have on their own economies. European Union officials said that their 15-nation bloc would be hard hit by the new tariffs, for instance. They calculate that more than half of the EU's 4 million tons a year of steel exports to the US will be hit with duties - and that their own markets might by flooded with up to 16 million tons of cheap steel from such nations as South Korea that would have otherwise gone to US shores.

Russian officials also reacted with anger, even though the Bush decision reserves a quarter of the slab-steel quota for Russian products.

Moscow will likely use the steel duties to excuse its imminent restrictions on imports of US poultry - a huge industry. The EU is expected to file a complaint with the World Trade Organization to reverse the decision.

The Bush tariffs could also destroy the February decision by 39 steel-producing countries meeting at the Organization of Economic Cooperation and Development in Paris to slash world production capacity by 100 million metric tons. The Bush move might "cause other countries to lose their profits on steel and lead to calls to provide support for other ailing steel industries," says Ben Goodrich, an analyst at the Institute for International Economics.

• Craig Savoye in Alton, Ill., and Seth Stern in Boston contributed to this report.