[VIEWPOINT]Steeling ourselves for tariff wars

Most steel manufacturers around the world have suffered for the past two decades from a steady fall in prices of steel products and overproduction. The few exceptions only prove the rule.

Last week, U.S. President George W. Bush announced that his country will impose tariffs of up to 30 percent on most steel products. His decision to protect the ailing U.S. steel industry will certainly freeze the world steel economy, which was at last showing signs of recovery, helped by the overall pickup in the global economy since the beginning of this year.

The United States has put its national interests before its international commitments; that will eventually cost the country more than its short-run gains. The levying of high tariffs on steel imports breaches the mandate of the World Trade Organization, which is "co-prosperity of the global village through the expansion of free trade," a principle trumpeted by the United States.

The action is also the result of commercial protectionism that will restrict free access to markets.

President Bush, who had been known as a free trade advocate, has shown himself to be a hypocrite by taking a step that contradicts his commitment and the philosophy that he has championed. His motive, some observers say, is to win support in areas where steel companies are clustered, such as the state of Ohio, in this year's congressional elections.

What is more worrisome about his move is that it opens a gate that could justify similar actions on behalf of other industries and trigger full-blown trade wars across the world.

Since the 1990s, steel companies worldwide have grappled with an oversupply of steel products. The collapse of the former Soviet Union left Russia with excessive steel production that was intended for domestic consumption. Russia promptly emerged as the leading steel exporter in 1995. In addition to the 20 million to 30 million metric tons of steel products coming from Russia every year, in the early 1990s steel manufacturers in Asian countries and the United States also scrambled to increase their steel production capacity. The situation worsened when imports from Asian countries fell sharply during the 1997-1998 financial crisis.

According to statistics published by the International Iron and Steel Institute, steel product capacity outstripped demand by 300 million metric tons in 2001.

Another important cause of worldwide overcapacity in the steel industry was that steel companies in industrial countries, including the United States, neglected restructuring of their domestic industries.

If the United States tries to disguise the fundamental problems in its steel industry with makeshift measures, it will destroy global free trade. The hardships in the U.S. steel industry are caused by internal factors, such as excessive severance payments, pensions and medical insurance, not external factors like steel imports. Even U.S. economists are criticizing Mr. Bush for his attempt to put the blame on the outside world. They are more concerned about the retaliatory actions that Mr. Bush's move would set off in other countries than the protectionist effects on the U.S. steel industry. If frictions among trading countries are exacerbated, the United States will suffer the most. It is the biggest beneficiary of free trade.

Affected countries are planning joint actions, including bringing the tariffs to the World Trade Organization or putting retaliatory tariffs on imports from the United States. It is obvious that the United States will eventually be the big loser. The tariffs may bring some limited benefits to the American steel industry and in local politics, but the losses from industries using steel products will be serious and damage American national interests.

Korean steel companies should not pin their hopes on a relaxation of the U.S. government's measures or international criticism of U.S. steel policy. The Korean industry should restructure itself to become more competitive and efficient. It should seek strategic ties with business partners in steel importing countries to develop markets and cope with the changing trade enviroment. And of course it must brace itself for protectionism that may sweep the world, initiated by the U.S. action.

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The writer is a professor of economics at Dankook University.

by Kim Sae-young