Steel Tariffs Criticized By U.S. Auto Industry, Europeans

Autoparts Report, March 20, 2002

The stiff tariff increase on imported steel is getting mixed reaction from U.S. industry, with steel users, such as auto and auto parts manufacturers, complaining about the added material costs in producing autos. The steel industry, on the other hand, believes that the new relief will save the U.S. steel industry. Automotive companies are concerned that higher steel prices would drive up the cost of steel in the United States and pull down the cost of steel for Japanese and European competitors.

European Reaction--The president of the European Central Bank said the U.S. decision to put tariffs on imported steel was 'deplorable', adding the move may have been designed to offset the impact of a strong dollar on U.S. manufacturers.

Wim Duisenberg, who stressed the need now to avoid a global trade war, said the move by President George W Bush would do only "negligible" damage to economic growth in the euro zone. He said the main impact would be on U.S. consumers who would have to pay more for certain goods.

"I'm rather inclined to say this deplorable action by the United States' authorities to protect its steel industry may have something to do with the exchange rate of the dollar as it is being experienced by the American steel industry," he told a news conference after the bank's monthly meeting. Duisenberg had been asked if the decision by Bush to slap tariffs of up to 30 percent on a range of steel imports could end the strong dollar policy, which U.S. manufacturers claim hurts them by making foreign imports cheap.

Bush's move provoked outrage from other steel producers who vowed retaliation and the European Union filed a formal complaint with the World Trade Organization in Geneva.

The dollar recently reached a 16-year high on a trade- weighted basis, and Ford Motor Co. last month called on Washington to do something about the advantage that this hands foreign rivals, particularly companies in Japan.

"What Duisenberg said made perfect sense. It is quite obvious that the steel sanctions have got something to do with the strength of the dollar," said economist Joachim Fels at Morgan Stanley in London. "The dollar is more over-valued than it has ever been in the past, more even than in the 1980s, and this is one reason why U.S. manufacturers have these problems," he said.

Since the mid-1990s, a strong dollar has helped keep U.S. inflation in check and interest rates low, thus helping the economy finance a massive current account deficit. The flip-side is cheap imports and complaints from U.S. manufacturers to Treasury Secretary Paul O'Neill to plead for relief, although with little sympathy. O'Neill, himself the former boss of Alcoa Inc, said pointedly that good companies didn't 'live or die' by exchange rates, to the dismay of the National Association of Manufacturers which claims the dollar is 30 percent overvalued.

O'Neill on defended the tariffs as a 'window of opportunity' for U.S. steelmakers to restructure, not a bid to grab a bigger share of the world market. "I think hopefully this will work and will ease the process of restructuring in the U.S. industry and not cause a secondary reaction that will be negative for everyone outside of the steel industry," O'Neill said.

But Duisenberg warned that the fallout would hit shoppers in the United States hard. "Those who will suffer most are the American consumers who will have to pay more than they otherwise would have to do for certain products," he said. "I'm thinking especially of the American car makers and their customers whose life will be more difficult than it otherwise would have been."

Duisenberg also warned that Washington was playing a risky game and invoked European memories of damaging trade conflicts from the last century. "So I support all the efforts that are being made in that context and to avoid a trade war with all its detrimental consequences," he said.