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Trade war averted as Bush scraps steel tariffs

TOKYO/WASHINGTON: Japan, China and Europe dropped threats of trade retaliation after U.S. President George W. Bush scrapped controversial steel tariffs more than a year ahead of schedule, risking a political backlash at home.

Despite possible political damage ahead of next year’s presidential election, Bush offered little to cushion the blow to U.S. steel makers and workers, who accused the Republican president of “capitulating to European blackmail”.

Announcing the decision on Thursday, Bush did say though that he would keep in place an existing system to licence and track steel imports so he could “quickly respond to future import surges that could unfairly damage the industry”.

Minutes after Bush’s about-face, the European Union suspended plans for retaliatory sanctions against $2.2 billion in U.S. goods, including politically sensitive products such as citrus fruits from Florida.

Japan also said it would drop a threat to impose retaliatory tariffs on $458 million of U.S. goods, but added that it wanted to make sure the U.S. tracking system did not impair trade. “We hope that the United States will continue to abide by World Trade Organisation (WTO) rules and play a leading role in maintaining free trade,” Japanese Chief Cabinet Secretary Yasuo Fukuda told a news conference on Friday. China, whose steel industry is booming, said it would not impose threatened tariffs on some U.S. goods “if the United States makes good on its promises” but did not say if it would roll back retaliatory tariffs on steel set in November 2002.

The U.S. tariffs, which Bush imposed in March 2002, officially ended at midnight Thursday (0500 GMT), instead of March 2005 as initially planned. Bush said that thanks to the tariffs, U.S. steel companies were again well-positioned to compete both at home and globally.

Better Ties: The decision should help improve trans-Atlantic ties marred by divisions over the Iraq war and averts a spat with Japan, Washington’s key Asian ally, at a time when the two need to cooperate on a crisis over North Korea’s nuclear arms programme.

It also avoids fraying U.S.-Japan ties as Tokyo considers when to send non-combat troops to Iraq, where two of its diplomats were slain last Saturday.

Eliminating the tariffs could also help allay market concerns that Bush was relying on protectionism to shore up the U.S. job market as he seeks re-election.

Critics said it would have been inconsistent for Bush, who ran as a champion of free trade, to flout the WTO decision while chiding China to meet its WTO obligations.

“The system has shown it can be respected,” a visibly delighted EU Trade Commissioner Pascal Lamy said in Brussels. The reversal could, however, spark a backlash against Bush in the battleground steel-producing states of Ohio, Pennsylvania and West Virginia as he seeks re-election in 2004. The United Steelworkers of America union, representing nearly one million active and retired steelworkers, derided Bush’s “complete lack of mettle in calling the WTO’s bluff” and said it would appeal to Congress for protection. The decision came less than a month after the WTO ruled that the tariffs violated global trade laws.

“Our trading partners obviously engaged the administration in a game of guts poker,” said Steelworkers President Leo Gerard. “Instead of telling them to ‘bring it on’, the president blinked.”

In an attempt to mollify the steel industry, the White House pledged to enforce anti-dumping laws and said it would press U.S. trading partners to cut subsidies for steel producers. —Reuters

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