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Thursday, November 13, 2003

Steel Crazy After All These Years

That's a section heading in this Economist article about the looming US-EU trade war over the Bush administration's steel tariffs. A lot of people like me are waiting to see what the White House does on this one now that they seem to be getting squeezed between foreign government criticism and the hopes of an important domestic manufacturing constitutency. The Economist, however, points out that Bush may get off the hook if a steel shortage now predicted for next year materializes:

WSD is now forecasting a shortage of steel in the first quarter of next year, noting that by this summer the world's mills were running at 95% of capacity. As well as China's appetite for imported steel there are worries about shortages of raw materials, such as the coke and scrap iron needed in steelmaking. WSD thinks there is a strong chance of the biggest price spike since the mid-1970s. True, Asian relief would not last for ever. China is investing heavily in expanding its own steel capacity. Sooner or later much of that will flood on to world markets. But in the meantime, higher prices may give Mr Bush a win-win opportunity: to please domestic steel consumers and shock his foreign critics--who love to cite his steel policy as evidence of his arrogant unilateralism--by scrapping the tariffs, without doing much damage to what remains of America's steel industry. Go for it, Mr President.

I don't think this will quite work. As I understand it, the steel industry wants the tariffs to remain in place, regardless of these projections. The EU and others are giving the administration some time to work on a new steel-trade regime, but I don't think they will be willing to just wait around until prices rise next year either. In short, I still think the president will catch a lot of hell however he moves on this.