US Steels Itself Against Competition

America comes first, whatever the consequences may be. That, in essence, is the signal the American president, George W. Bush is sending to the world.

Bush has imposed 30 percent tariffs on most imported steel - blocking billions of dollars worth of imports from the European Union, Russia, Japan, China and South Korea.

The move may trigger an international trade dispute and is one the president did not make entirely of his own free will.

Bush had his back against the wall and he gave in to the demands of a very powerful lobby: the American steel industry.

The steel lobby argues that a domestic steel industry is important for American security.

Carl Levin, the chairman of the Senate Armed Forces Committee, told a steel workers’ rally that "we go to war with what you make".

Going with the steel lobby, however, is likely to jeopardise the Bush administration’s free trade credentials and is likely to spark retaliatory action from America’s trading partners.

The European Union has already said it will challenge the US trade restrictions in the World Trade Organisation and plans to erect barriers around its own steel market.

Digging a hole to fill another

At the heart of the problem lies the failure of the large American steel-producers—unionised and intensive users of capital and labour—to modernise.

They are uncompetitive in what is now a fiercely competitive global market for steel. Sheltering behind trade barriers for so long, they have dismally failed to cut costs.

By erecting barriers to free trade Washington is trying to save the industry. Economically, however, the move is short-sighted according to the Economist magazine.

Steel prices will probably rise by about 10 percent on average. The effect on the economy is similar to a tax increase, argues the Economist.

The scheme will only have maximum impact on a handful of countries and provides several exemptions.

Already, manufacturers across America have requested around 1,000 exemptions from import tariffs.

They argue that specific grades and types of steel can only be purchased abroad.