Time to remove US steel import tarriffs

Edited by the Engineeringtalk editorial team Nov 20, 2003

Global steel market conditions have presented President Bush with an opportunity to do the statesmanlike thing, according to the latest European Steel Review.

Global steel market conditions have presented President Bush with an opportunity to do the statesmanlike thing - accept the World Trade Organisation's ruling that the US Section 201 import tariffs are illegal and end them.

US steel mills fear that lifting the "safeguard" tariffs would result in a renewed surge of low-priced imports that would derail their continuing moves to consolidate.

In the current state of the market, this is unlikely.

Prices are quite firm and global demand for steel is strong.

Conditions are very different from the late 1990s when US steel imports rose sharply, forcing many mills into bankruptcy.

There is no longer a serious international oversupply of steel.

Global production is running at all-time record levels, but prices are holding reasonably steady.

US steel imports would perhaps increase somewhat if the tariffs were eliminated, but for the foreseeable future it is hard to imagine circumstances in which a surge in foreign supplies would lead to another price collapse.

European mills would be among those to benefit most from eliminating Section 201.

They and other "traditional" suppliers such as Japan and Korea were hardest hit when the tariffs were imposed.

EU producers could increase their output a little if they were able to resume making dispatches to the US but they have not much incentive to push large volumes into this less remunerative market.

For a start, the weak dollar means the USA is far less attractive, not least for mills operating in the strong euro area.

There has been a 30% swing-about in the dollar/euro exchange rate since the tariffs were imposed in March 2002.

On top of this, the latest sharp increase in ocean freight rates has made it much more expensive to ship steel around the world.

Chinese demand is likely to remain strong.

This would keep prices and company profits at reasonable levels - giving the US mills the cushion they say they need to complete their consolidation.

Bush, therefore, has a window of opportunity to achieve several gains at once.

Eliminating Section 201 would appease US steel users who, independent studies have shown, have lost more jobs since the tariffs were imposed than have been saved in the steel industry.

On a practical level, it would avoid the damage caused by the EU (and probably Japan and others too) imposing retaliatory sanctions on some sensitive US exports.

Accepting the WTO decision would also allow Bush to take the moral high ground on international trade issues: for example, the EU would find it more difficult to defy any WTO ruling against its ban on imports of genetically modified agricultural products from the USA.

More broadly, it would reaffirm the USA's commitment to rules-based free trade after the debacle of the recent WTO summit in Cancun.

All this would be at the cost of little or no serious damage to the US steel industry - and virtually no harm to Bush's prospects for re-election in states like West Virginia, Ohio and Indiana.

What is he waiting for?.