Bush launches trade war

In a blatant act of political myopia, President George W. Bush of the USA has managed to turn the countries he has been courting as allies against him as the world unites in retaliation which will certainly hit American consumers harder than anybody else.

Ignoring the pleas from British Prime Minister Tony Blair and the President of the European Union Commission, Romano Prodi, not to impose tariffs on foreign steel entering the USA, George Bush crumbled under the sustained pressure from the internal industry lobby, remembering that the states of West Virginia, Ohio and Pennsylvania, where the steel industry is concentrated, will be important sources of votes in future.

After 31 steel companies had filed for bankruptcy in the previous four years, with 20,000 jobs lost, America’s remaining 175,000 steel workers called for 40% tariffs on certain grades of imported steel. After careful deliberation, Bush imposed a tariff of between 8 and 30% on 16 grades, including a 30% tariff on tin mill steel, produced in West Virginia, an important swing state in the Presidential election. The chips are already being called. The joint effect of this will prove the high degree of political and strategic short-sightedness which Bush suffers from, a degree dangerously high for a man in his position.

As far as the internal market is concerned, the effect of these tariffs will mean that US consumers buy steel made in the USA, pushing up prices but not nearly enough to save many of the country’s ailing steel mills. The sickest of these are the enormous plants with high overheads, which are being out-manoeuvred by smaller, smarter mills both in the USA and abroad. Half of the jobs in the US steel industry are in these mini-mills.

US industries which used foreign steel will have to buy the same grade at higher prices, meaning that firms in a precarious position are pushed over the edge. Not only will the American mills suffer, but also all industries which use or transform steel, not to mention the others which will feel the effects of a worldwide trade war as the reaction comes.

This reaction is being planned by the European Union, Japan and possibly South Korea, which will take up the matter with the World Trade Organisation. The EU Trade Commissioner, Pascal Lamy, called Bush’s decision “unfair, unfounded and unnecessary” since it does not come into line with the WTO’s free trade policies. President Bush claims that the move is legal because it is within article 201 of US commercial law, which is legitimate under WTO regulations, since the tariffs are not applicable to Less Developed Countries.

M. Lamy retorted that the action taken by the USA is illegal and is in breach of WTO rules. He claimed that the WTO will judge the situation based on multilateral rules which the USA has now broken. The WTO provides for certain measures to be taken in retaliation.

To give an idea of the magnitude of the decision, the USA imports some 20 million tonnes of steel every year. Around 3.7 million tonnes are from the EU, 2.8 from former CIS countries, 2.2 from Japan, 2.1 from South Korea and 2.9 from Brazil and other South American countries. Canada, which sells 3 million tonnes per year to its southern neighbour and Mexico (2.2 million tonnes) will remain outside the decision due to their belonging to NAFTA, (the North American Free Trade Association).

Regarding the worldwide scenario, the producers of the 16 grades of steel on which the tariffs are imposed (the most industrialised nations) will suffer because they will not find alternative markets. Instead, there will be a surge of unwanted cheaper steel on the market, coming from other producers, putting the European, Japanese, South Korean and CIS steel industries under pressure. In Japan’s case, US anti-dumping laws have already reduced the country’s steel exports by 65% in the last 4 years.

This pressure is certain to be translated into thousands of job losses. As President Bush chose between job losses at home and elsewhere, his decision focused on the micro, but not the macro, situation. Unable to get policies through the Senate (split 50/50 between Republicans and Democrats), Bush was looking for easy votes in the steel-producing states but as he sells out his formerly precious free-trade principles without blinking, the reaction from abroad is swift.

The reaction will hit industries across the board as America’s trading partners, exactly the friends President Bush is trying to cultivate to support his external policy, retaliate. The Russian Federation has already declared that imports of US chicken are to be halted or sharply reduced. As he faces a long legal battle in the World Trade Organisation, President Bush puts an unnecessary strain on his international alliances at a critical time in world history, with the purpose of protecting jobs in an industry which is already ailing.

Cosmetic surgery from a man in such a position of responsibility is dangerous and unacceptable. In treating the symptoms, but not the causes, George Bush does little to further the notion that he is intelligent or even knows what he is doing.


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