- The Washington Times - Thursday, March 28, 2002

Has the administration triggered a trade war by raising tariffs on imported steel?Critics warned that President Bush's decision would ignite retaliation by our trading partners and that appears to have happened. Fearing a wave of cheap steel will descend upon Europe from Asian countries hit by the U.S. tariffs, the European Union has decided to raise import taxes of their own to protect their steel industries.

This raises the specter of a damaging trade war between the U.S. and Europe, with the prospects of the conflict spreading to the Pacific Rim where the once-robust Asian Tigers are still struggling to climb out of their economic slump. And that in turn could short circuit or slow America's own economic recovery.

A week after the steel decision, the administration also slapped higher tariffs on lumber flooding in from Canada, casting a shadow over the prospects of the free trade movement in the huge North American market. And with it, higher home-building costs.

The retaliatory tariffs were to be approved this week by the EU's executive commission. The speed with which the EU was responding to Mr. Bush's move caught the White House by surprise. The administration had just approved its higher tariffs to protect inefficient U.S. steel manufacturers from cheaper imports from countries like China and South Korea, so Europe could not be feeling any pricing pressure this quickly.

But EU officials say steel imports were already rising rapidly over the past three years and under global WTO trade rules, countries can move to limit imports if officials believe the imports will threaten their industries.

Before Mr. Bush decided to raise steel tariffs, debate within the White House over the economic and political pros and cons was fierce. On one side of the debate was the president's political strategist Karl Rove who reminded Mr. Bush of his campaign pledge to protect the steel industry from illegal foreign dumping of cheap steel. Mr. Bush carried West Virginia, a strongly Democratic state, partly because of that pledge. But he lost steel-producing Pennsylvania, a pivotal electoral prize he may need in 2004.

Moreover, Mr. Bush was several votes short of getting his trade-promotion authority bill through the Senate and Mr. Rove advised him it would make things a lot easier for some lawmakers to support the free trade negotiating bill if they could point to his action to protect big steel.

On the other side was economic adviser Larry Lindsey and Treasury Secretary Paul O'Neill who warned that higher tariffs would invite retaliation from abroad at a time when the U.S. exports to Europe and Asia have been declining. The tariffs would also mean higher prices for thousands of U.S. manufacturers and consumers, from cars to washing machines to hot-water heaters.

These are not the only negatives that the steel tariff decision has spawned. The EU has already begun World Trade Organization proceedings to extract $2 billion from us to compensate Europe for the higher tariffs. Such offsets can be in the form of lower U.S. tariffs on other European goods. But in the event no compensatory agreement is reached, the EU has prepared a lengthy list of U.S. exports from textiles to citrus fruits that would be hit with higher tariffs.

It does not take a lot of deep economic thinking to see where all of this could lead. Once begun, a trade protectionist war has a rippling effect around the world, one that could severely hurt the American economy in the months to come.

This is a risky business the administration has entered without fully knowing all its ramifications in the increasingly interdependent global economy.

Trade tariffs are seen by the special pleaders as the only way to protect themselves from fierce overseas competition. The steel industry knows it must modernize to lower its costs and become more competitive. But, like drug addiction, higher tariffs will only delay U.S. steel from making the hard cost-cutting steps needed to become lean and mean.

Trade tariffs may sound benign but they are nothing more than another form of taxation we all end up paying one way or the other. Government levies these tariffs, collects them and spends them. In the case of Mr. Bush's steel tariffs, they will mean billions of dollars in higher costs on our economy.

The politics of tariffs is a risky business. The White House has calculated that the latest round of steel and lumber tariffs will help Mr. Bush carry several key states in 2002, but so will a robust economy growing at 4 percent or 5 percent a year with full employment. The distant sounds of a trade war now put that kind of growth rate in jeopardy.


Donald Lambro, chief political correspondent for The Washington Times, is a nationally syndicated columnist.


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