Bush’s Steely Dilemma: The tariffs are illegal

So says the WTO. Actually, it was back in July that the WTO initially said that the steel tariffs, imposed in early 2002, contravene WTO rules. But the US appealed that decision. According to WTO rules, any country has one chance for an appeal, and the ruling of the appeal is final. The AP is now reporting that the WTO appellate panel is going to issue a verdict later today affirming the initial WTO ruling – that is, ruling against the US.

What does this mean? It means that the EU countries (along with a few other) are legally allowed to impose tariffs on a number of US products. Being politically savvy, the products that they intend to target come from a few key swing states, like Ohio and North Carolina. Actually, the EU already won permission to impose some tariffs on US goods for an unrelated WTO decision that went against the US (that one was about US tax laws that unfairly subsidize exports), but they haven’t imposed the tariffs yet. I wouldn’t be surprised if this time they fire away, however.

The steel tariffs are pretty widely acknowledged as an economic blunder, done for purely political purposes, but which is providing less political benefit than Rove had hoped for. As I discussed several weeks ago, the Commerce Department’s International Trade Commission finds that the steel tariffs are costing US jobs in other manufacturing industries. And now, if the steel tariffs are maintained, the new tariffs that the EU imposes will cost more US jobs.

So the question is this: what does the Bush administration do? There’s a faction in the administration that has wanted to get rid of the tariffs for months, for the reasons mentioned above (plus, Bush is supposed to be a free-trader on principle, isn’t he?). But they were overruled, presumably by Rove and others who are still hoping for some political benefit of maintaining them. Actually, I think that this is a classic case (as with a lot of Bush’s policies) where the administration can’t admit they’ve made a mistake and change policies, even when it’s clear to everyone that they should.

So, will Bush’s fear of admitting a mistake beat economic common sense? Another possibility is that the administration will see the WTO ruling as some convenient political cover for dropping the tariffs. It certainly will strengthen the hand of the anti-tariff faction within the administration. On the other hand, taking orders from a multinational institution that the US doesn’t have complete control over will certainly rankle a lot of people in the administration (particularly over in the Vice President’s office, I would imagine). So who will win? Stay tuned.