White House Shuts Steel Door on Cheap Imports

March 5, 2002 -- In an effort to save what's left of a dying U.S. industry, the Bush administration today embraced the idea of higher import tariffs for steel from some foreign competitors.

Opting against a broad ban on cheap foreign steel, President Bush has removed the welcome mat for cheap steel from big allies like Japan, Germany, and Russia, by raising tariffs up to 30 percent against the importers, who vowed to fight back.

"These safeguards are expressly sanctioned by the rules of the World Trade Organization," Bush said in a statement, stressing that the move was only a temporary safeguard and urging that the industry take advantage of the time to restructure.

Heavy Decision to Make

American steel makers had pushed to keep cheap, below-cost steel imports from coming into the country with tariffs of up to 40 percent. They argued if nothing is done, they'd go out of business.

But the steel consuming industry and consumers maintained high tariffs would also mean higher prices for consumer products. In addition, some of America's trading partners say they will retaliate.

The decision comes after talk of a divide within the administration between those taking a free trade stance and those with their sights on saving steel industry jobs, especially critical since most of those jobs are concentrated in political swing states that could help determine control of the House in upcoming elections.

For instance, at Weirton Steel in the traditionally Democratic-leaning state of West Virginia — where Bush nabbed five crucial Electoral College votes in 2000 — the president's action was welcome news.

"I think it will save jobs, clearly," said Weirton CEO John Walker, "as we have been having some very difficult times." His company has shed 7,000 jobs in recent years.

Many Will Pay for Changes

Despite efforts at a comfortable compromise, both sides of the issue stand to lose, a point not lost on the president. "There are good people on all sides of this and [the decision] will probably cut both ways," Fleischer noted.

A higher tariff to protect the domestic steel industry will probably come at a heavy price to relations with countries that conduct friendly trade with the United States. Already the White House is hearing complaints from the European Union and threats of retaliation. And Russia has informed the U.S. ambassador that tariffs could spoil relations.

Meanwhile, steelworkers stateside are left with unsure pension and health-care prospects.

Still, Sens. Arlen Specter, R-Pa., and Rick Santorum, R-Pa., who pushed the White House for high tariffs, offered unstinting praise of Bush's impending decision, calling it Solomonic — enforcing trade laws and giving the domestic steel industry the time and opportunity to restructure. It provided that breathing space, while also taking into consideration the interests of steel-consuming industry, they argued.

Higher Prices Trickle Down

But the move won't have the desired results at home or abroad, Calman Cohen, president of the Emergency Committee for American Trade told ABCNEWS. He forecast that the U.S. will find itself in a messy trade war while short-changing American steelworkers. "More jobs will be sacrificed than protected," he said.

David Phelps, president of The American Institute For International Steel, or AIIS, agrees, adding that the action would hurt both companies that use steel to make products and shoppers.

"You cannot increase the cost of a raw material that is fundamental to the U.S. industrial base by this kind of tariff without having dire economic consequences for a lot of people."

The problem is the United States does not make enough steel to satisfy the demand for steel in this country, Phelps explained. As a result, it has to bring it in. "Without imports of steel, we will strangle our customer base and will lose more jobs. Study after study finds that many, many more jobs will be lost in the steel consuming industry than will be saved by any more protectionist actions by the U.S. government."

Also at issue is how the tariffs will affect how much consumers pay for products made of the metal. Phelps said he expected to see higher prices for things like backyard barbecues, refrigerators and cars. Even the most basic of necessities — like canned foods — will see the effect.

"It won't be helpful to the average consumer who is buying the canned corn or canned peas for his dinner table," he argued. "The tariff on tin-mill products that are used to make cans will go up 27 percent."

Phelps further complicates the question by pointing out that new policies may mean some product manufacturing will move out of the U.S., because companies will not be able to afford the production service anymore. "The company that makes the barbecue might go out of business. Then we would have imports of barbecue instead of imports of steel employing people in the United States."

Long-Suffering Industry

All sides agree the American Rust Belt is hurting. The United Steelworkers of America date the current crisis to 1997. Since then, 31 steel companies have filed for bankruptcy, with 24 of those filings coming in the past two years. According to the Bureau of Labor Statistics, more than 43,000 steelworkers have lost their jobs with the shutdown of 50 mills and related facilities.

In December, the U.S. International Trade Commission recommended a range of tariffs — from 20 percent to 40 percent — on steel imports, saying that an increase in imported steel was hurting 80 percent of the American steel industry.

The steel industry had lobbied hard for the 40 percent tariff, saying it is the victim of foreign dumping.

"Prices started going down around 1997 or 1998 when we had imports surge," said John Duray, spokesman for the American Steelworkers Association, or ASA. "The Asian economy went bust, then the Russian economy. Demand dried up and they shipped it here."

The ASA complained that foreign governments have continued to prop up inefficient production with subsidies, allowing steel-makers in Russia and other countries to continue to undercut U.S. prices. "Is it a free market when all of your competition receives government subsidies?" asked Duray.

Free-trade advocate Phelps opposed any increase in tariffs, arguing that the U.S. steel industry has only itself to blame.

According to Phelps, it is actually the American steel companies that are inefficient. "There are a lot of very successful and competitive steel companies. What this whole debate has been about is how do we save the weak companies. We're dealing with the legacy of an industry that has been protected by the government virtually non-stop since the Johnson Administration. This is corporate welfare."

ABCNEWS' Ann Compton, Andrew Cremedas, Ramona Schindelheim and Romy Ribitzky contributed to this report.