Trade war: The 2002 steel case

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Washington (AFP)

President Donald Trump's announcement of plans to impose 25 percent tariffs on steel imports evoke the 2002 precedent when then-president George W. Bush attempted the same protection for domestic industry.

Like Trump, Bush announced tariffs on steel imports just over one year after taking office, on March 5, 2002. They ranged from 8 percent to 30 percent for 10 categories of imported products such as flat rolled steel, machine wire and welded pipe.

Those safeguards were to remain in effect for three years and a day to support the US steel industry, which was struggling to restructure in the face of global competition.

The duties affected about 29 percent of imports by volume. Washington, however, excluded Canada, Mexico, Israel and Jordan, which had free trade agreements in place with the United States.

In his announcement Thursday, Trump said that next week he will impose 25 percent taxes on steel and 10 percent on aluminum, but he did not specify which products would be hit, nor whether any countries would be exempted.

Bush said such safeguard measures are expressly provided for by the rules of the World Trade Organization, that allows temporary restrictions in cases when imports damage domestic industries.

WTO rules do allow for certain trade restrictions based on national security concerns as well, but as subsequent events showed, they are difficult to uphold.

- Retaliation -

The European Union and several other countries immediately filed a dispute complaint with the WTO and published in May 2002 a list of US products that would be hit with retaliatory tariffs of up to 100 percent, including on fruit juice, T-shirts and underpants.

That launched tit-for-tat retaliations between Washington and its partners, each attempting to use the weapons authorized by the international trade rules. The US administration also tried to appease some partners by expanding the list of exemptions.

But the protectionist policy caused a sharp decline in the US dollar, which was exacerbated by the widening budget deficit caused by the tax cuts enacted around the same time, another parallel with the current situation under Trump.

Bush was forced to backtrack less than two years later after losing the case in the WTO brought by the 15 EU countries and seven others (Japan, China, Brazil, New Zealand, Norway, South Korea, Switzerland).

The White House capitulated amid the threat of duties of up to $2.2 billion on US products, including fruits and vegetables, textiles, footwear and motorcycles, some products important to the regions providing key support to Bush's reelection bid.

To explain his flip-flop, Bush had expressed his "strong belief that America's consumers, the American economy is better off with a world that trades freely and a world that trades fairly."

According to some studies, the economic consequences of the dispute cost about 200,000 jobs to the US economy.