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Thursday, 7 June, 2001, 07:30 GMT 08:30 UK
Slowdown fuels US steel aid
steel wars
President Bush is trying to help out the notoriously inefficient US steel industry

By BBC News Online's Briony Hale

President Bush has this week boldly launched a mission to protect the US steel industry.

His move raises fears that economic slowdown could make countries increasingly protectionist.

There are always flare ups when the economy starts slowing

Dr Razeen Sally
London School of Economics
His decision to probe steel imports prompted hostile reactions from the EU, Japan and China amid clear signs that the world is heading into a steel war, just seven weeks after the three-year long banana war ended.

And many other simmering disputes between trade partners could be heightened by the political and economic pressures created through a slowdown.

Spiralling trade wars and rising anti-globalisation fervour could make the meeting of the World Trade Organisation (WTO) in Qatar in November highly contentious.

Propping up industry

The rest of the world has been eager to see the new US administration's stance on trade issues.

The EU-US banana trade war lasted for three years
Now, some analysts think that President Bush's aggressive stance on steel may set the agenda for wider trade issues, in spite of his reputation as a champion of free trade.

Bush has ordered the US International Trade Commission to launch a full investigation of the steel industry for suspected dumping - the illegal practice of selling exports at a price lower than it costs in the home market.

"It's in our nations' interest to make sure that if there are unfair trade practices in the steel industry, we address them in a very aggressive way," said Bush.

The way that 'unfair trade' is defined is so broad that it encompasses most normal business practices

Gary Hufbauer
Institute of International Economics
But many experts suspect that the US cries of "unfair trade practice" are an excuse for Bush to prop up an ailing industry.

The US steel industry is notoriously inefficient, with 18 US steel firms filing for bankruptcy protection, and 20,000 steel workers laid off since 1998.

EU objections

The European Union has also been quick to voice its disapproval.

The US and the EU fell out over imports of genetically modified beef
"The cost of restructuring in the US steel industry should not be shifted onto the rest of the world," said EU Trade Commissioner Pascal Lamy in a statement, which referred to the move as "protectionist safeguard measures".

"Disputes will intensify. We will study and take corresponding measures," warned a Chinese steel industry official.

Trade wars are an area where the tit-for-tat mentality comes into its own.

"The danger is that a relatively minor dispute can escalate to the point where relations breakdown," said Dr Razeen Sally, a senior lecturer at the London School of Economics.

The cost of restructuring in the US steel industry should not be shifted onto the rest of the world

Pascal Lamy
EU Trade Commissioner
The Chinese government has threatened to curb car imports from Japan in retaliation for Japanese import restrictions on Chinese mushrooms, spring onions and hand towels.

China may also suspend imports of South Korean mobile phones and polyethylene if Korea doesn't import thousands of tonnes of Chinese garlic.

The EU and the US are locked in a number of complex trade disputes, including the labelling of genetically modified beef, the legality of export tax rebates, and the subsidy of airbus manufacturing.

Obliterating foreign competition

If the investigation confirms the existence of 'unfair trade practices' the US will be allowed to impose hefty anti-dumping taxes on imports that could obliterate competition from abroad.

It has become much easier to prove that goods are being dumped and thus easier for protectionist governments to impose taxes.

cotton picker
Pakistan and the US are locked in an argument over cotton trade
"The way that 'unfair trade' is defined is so broad that it encompasses most normal business practices," said Mr Hufbauer, adding that this is the huge gaping hole in WTO policy.

This has meant that the practice of imposing anti-dumping taxes has grown rapidly over the past years.

"It's a game being played by both the EU and the US. And developing countries such as Brazil and India are joining in," said Dr Sally.

But it's also a game that seriously hampers the growth of industries in the developing world, as they often do not have the finances and resources to fight such legal battles.

Rising protectionism

The pressures of a global economic slowdown - together with strong currencies in the UK and the US - will lead to even greater pressure for government action.

Aggressively protectionist policies are most apparent in the aftermath of severe economic crises such as currency devaluations or the Asian crash.

But it also comes into play with milder slowdowns, such as that occurring in the US at the moment.

"There are always flare ups when the economy starts slowing," said Dr Sally.

A slowdown typically brings to the surface the sectors that are already in difficulties. A slowdown could be the last straw that prompts industry leaders to lobby the government for action.

A string of other industries including lumber, agriculture and cars could begin to press for similar government action if the US slowdown intensifies, says Mr Hufbauer.

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See also:

05 Jun 01 | Business
No progress at US-China WTO talks
27 Dec 00 | Business
EU-US trade dispute looms
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EU opens attack on US steel probe
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