Metal and mettle

National | ECONOMICS: President Bush played politics with steel tariffs, got slapped down, and now faces retaliation from Europe. With a real war going on, can he afford a trade war?

Issue: "The Kennedy Assassination," Nov. 22, 2003

With his piercing dark eyes and narrow balding pate, Pascal Lamy could be the global economy's James Carville. Surely the White House, too, has noticed the similarity between the European Union's Trade Commissioner and the Democrats' Ÿber-strategist.

Mr. Lamy has been plotting the overthrow of Bush administration trade policy, particularly since Mr. Bush levied heavy tariffs on steel imports 18 months ago. The World Trade Organization ruled those tariffs illegal on Nov. 10.

Now Mr. Lamy is ready to move in for a second score, inflicting maximum political pain on the president leading into Campaign 2004. Mr. Lamy has a hit list of key U.S. products-$2.2 billion worth of American goods-that will be blocked from European nations starting next month if the U.S. steel tariffs stand. The list is designed to short-circuit the president's reelection efforts, targeting citrus growers in the key state of Florida, farm products, and automotive goods from the electoral-rich Upper Midwest.

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Mr. Lamy hatched his plan more than a year ago after Mr. Bush slapped 30 percent tariffs on imported steel. That move, widely seen as a political play to win labor votes in Rust Belt states (particularly Pennsylvania, where Mr. Bush lost narrowly to Al Gore in 2000), prompted the EU's trade office to counter with its own electioneering, declaring that "a political measure requires political action."

After last week's WTO ruling, Mr. Lamy promised "a racing certainty" that the EU will sanction U.S. goods if Mr. Bush does not end the tariffs. The plan would hit 100 products with retaliatory tariffs of up to 100 percent, pricing them out of European markets.

Mr. Bush, usually a free-trader, surprised friends and foes when he announced the tariffs in March 2002. He said they would help the U.S. steel industry compete with cheaper products from abroad. He said the tariffs would give U.S. steelmakers a "level playing field" after "50 years of foreign government intervention in the global steel market."

Mr. Bush also promised that the tariffs would be temporary, thereby hoping to bypass WTO censure. And he called on U.S. steelmakers to use the hiatus he was giving them to restructure their industry.

But outside flagging steel plants, where 30 percent of U.S. steelmakers have declared bankruptcy and 45,000 steelworkers have lost their jobs, few supported the move. The president's own Council of Economic Advisers warned against tariffs, but insiders say Karl Rove, the president's chief political strategist, overruled.

Eighteen months later, Washington has received a practical course in Econ 101. While the duties may have bolstered the steel industry's bottom line, they inflicted a heavy price on other sectors of the U.S. economy. The tariffs backfired on U.S. steel consumers like carmakers and appliance manufacturers when the time came to purchase steel. Overall the U.S. economy suffered a $680 million hit due to the tariffs, according to the International Trade Commission.

And then there's Politics 101: With Iowa caucuses nearing, it's becoming plain that the president hasn't been helped politically, either. Big labor once again is lining up behind the predictable spread of Democratic challengers to the presidency. United Steelworkers of America, the second-largest U.S. labor organization, has already endorsed Missouri Democratic Rep. Dick Gephardt for president.

Washington rumor mills after the WTO ruling buzzed that Mr. Rove may be ready to recommend a compromise plan that will end the tariff ruckus. But it's hard to imagine that the president, having locked horns with EU nations over Iraq, will bow to European pressure. Former Clinton press secretary Joe Lockhart, now a steel consultant, said it's not clear that Mr. Lamy and his colleagues "understand how averse President Bush is to being told what to do. I honestly believe the single-worst approach with this guy is to threaten him ... particularly if you're European." Weighed in the balance, however, the president may conclude he cannot risk a trade war while he has a terror war to fight.


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