2002 United States Steel Tariff

The Section 201 steel tariff is a political issue in the United States regarding a tariff that President George W. Bush placed on imported steel on March 5, 2002 (took effect March 20). The tariffs were lifted by Bush on December 4, 2003.

The temporary tariffs of 8-30% were originally scheduled to remain in effect until 2005. They were imposed to give U.S. steel makers protection from what a U.S. probe determined was a detrimental surge in steel imports. More than 30 steel makers had declared bankruptcy in recent years. Steel producers had originally sought up to a 40% tariff. Canada and Mexico were exempt from the tariffs because of penalties the U.S. would face under the North American Free Trade Agreement. Additionally, some developing countries such as Argentina, Thailand, and Turkey were also exempt. The typical steel tariff at the time was usually between zero and one percent, making the 8-30% rates seem exceptionally high. These rates, though, are comparable to the standard permanent US tariff rates on many kinds of clothes and shoes.

Both the issuing and the lifting of the tariffs caused controversy in the U.S. Some of the president's political opponents, such as Representative Dick Gephardt, criticized the plan for not going far enough. For some of the president's conservative allies, imposing the tariff was a step away from Bush's commitment to free trade. Critics also contended that the tariffs would harm consumers and U.S. businesses that relied on steel imports, and would cut more jobs than it would save in the steel industry. Supporters of the tariffs believed that U.S. steel producers were being harmed by a 'surge' of steel imports endangering the viability of American steel companies.

There was a widespread belief on all sides of the debate, confirmed by top Bush administration officials, that politics played a role in the decision to impose tariffs. Namely, the large and important Rust Belt swing states of Pennsylvania and West Virginia would benefit from the tariffs. The placement of the tariffs was an odd one for Bush, who has signed numerous free trade agreements during his term in office. This was widely believed to be a calculated political decision, insofar as the localities that stood to benefit were marginal ones. On the other hand, both the earlier Bush I administration and the Reagan administration had also imposed import limits on steel.

The tariffs ignited international controversy as well. Immediately after they were filed, the European Union announced that it would impose retaliatory tariffs on the U.S., thus risking the start of a major trade war. To decide whether or not the steel tariffs were fair, a case was filed at the Dispute Settlement Body of the World Trade Organization. Japan, Korea, China, Taiwan, Switzerland, Brazil and others joined with similar cases.

On November 11, 2003, the WTO came out against the steel tariffs, saying that they had not been imposed during a period of import surge — steel imports had actually dropped a bit during 2001 and 2002 — and that the tariffs therefore were a violation of America's WTO tariff-rate commitments. The ruling authorized more than $2 billion in sanctions, the largest penalty ever imposed by the WTO against a member state, if the US did not quickly remove the tariffs. After receiving the verdict, Bush declared that he would preserve the tariffs. In retaliation, the European Union threatened to counter with tariffs of its own on products ranging from Florida oranges to cars produced in Michigan, with each tariff calculated to likewise hurt the President in a key marginal state. Faced with the threat, the U.S. backed down and withdrew the tariffs on December 4.

The early withdrawal of the tariffs also drew political criticism from steel producers, as well as supporters of protectionism, but was cheered by proponents of free trade and steel importers. When he lifted the tariffs, Bush said, "I took action to give the industry a chance to adjust to the surge in foreign imports and to give relief to the workers and communities that depend on steel for their jobs and livelihoods. These safeguard measures have now achieved their purpose, and as a result of changed economic circumstances it is time to lift them."