Will there be a trade war?
Probably not. But imposition of protective steel tariffs as high as 30% by the US has angered European officials enough to make the question more than hypothetical.
A trade war would stall economic recovery and stymie growth in demand for oil and natural gas. It would hurt all countries.
Nobody wants a trade war. But retaliation has begun.
European Commission President Romano Prodi on Mar. 27 announced duties as high as 26% on European Union imports above 3-year averages of 15 types of steel.
He described the move as protection against imports diverted to Europe by the new US tariff.
Robert Zoellick, the US trade representative, threatened to complain to the World Trade Organization.
Earlier, the EC identified more than 300 US products on which it might impose sanctions if the US government doesn't compensate EU members for lost steel trade.
The EC obviously selected products that would put political pressure on US President George W. Bush.
The list includes citrus products and motorcycles, which would hurt fruit growers in Florida and manufacturers in Wisconsin-both toss-up states in the 2000 presidential election.
The list also includes steel to offset the political favor Bush hoped tariffs would win in Pennsylvania and West Virginia.
Surgical political retaliation is better than the all-out trade war nobody wants. But a cycle of measured retaliation can spiral out of control.
The threat to general economic health is, by itself, plenty for the oil and gas industry to worry about.
Also, the tariffs and countermeasures will raise costs of some steel goods. US drill-pipe manufacturers won an exemption from the tariff for imports of the steel they need. Not exempted is steel used for casing and production tubing (OGJ, Mar. 25, 2002, p. 38).
This all emerges during the first term of a president who has described himself an advocate of free trade.
Steel tariffs tarnish those credentials. They jeopardize the economy and compromise international relations in service to a domestic political move likely to backfire.
They represent the biggest mistake Bush has made so far.
(Online March 28, 2002; author's e-mail: email@example.com)