Under pressure from many of his top advisers to lift tariffs on steel imports, Bush is also looking to avoid a confrontation with Europe, Republican sources and analysts said on Tuesday.
The European Union has threatened to retaliate by mid-December on a range of US products including Florida oranges and Carolina textiles if the duties are not lifted.
The White House said no decisions have been made and officials have not publicly ruled out the possibility that the administration could flout the World Trade Organisation by keeping the tariffs in place.
Administration sources said Bush, who came to office championing free trade, has begun final deliberations and could make his decision as early as next week.
Friend or foe? Bush and French
The WTO’s highest court ruled on Monday that US steel duties violated international trade laws.
Republican sources and analysts say the administration appears to be leaning toward removing – or at a minimum scaling back – protections for US steelmakers for a host of reasons, not the least of which is the EU’s threat to retaliate on $2.2 billion of American exports.
Bush’s economic team and some of his political advisers have privately warned him the tariffs may be doing more harm than good, though he has a mixed record of following their advice.
Administration sources point to signs that the tariffs have served much of their stated economic purpose – giving steel makers time to consolidate operations and become more competitive after a string of bankruptcies.
Some political advisers with close ties to the White House also questioned whether Bush would realise any political gain by defending the controversial March 2002 decision, which imposed tariffs of up to 30% on imported steel and sparked an international backlash.
“It’s kind of the classic case of, ‘Where’s the beef?'” said Republican consultant Scott Reed.
“There weren’t a lot of new jobs created and I’m not sure there was much political benefit in those targeted states.”
Bush could face a backlash whatever the decision. If he bows to pressure from the European Union to lift the tariffs, he stands to lose support in next year’s presidential election in the pivotal steel-producing states of Michigan, Ohio, Pennsylvania and West Virginia.
Keeping them in place would hurt small and medium-sized Midwestern manufacturers in states like Illinois and Michigan – another important constituency – and clear the way for the EU to retaliate against exports from key states.
Bush can not afford a trade war
Some members of Bush’s own Republican party, including Senate Finance Committee Chairman Chuck Grassley, have urged him to back down.
They say it would be inconsistent for the United States to flout the WTO’s decision while pushing forward with a series of free trade negotiations around the world and chiding China to meet its WTO obligations.
“I think as long as the tariffs are in place, that will be the big throwback. This is such a big thing and the US is so clearly in the wrong,” said Gary Hufbauer, a trade expert at the Institute for International Economics.
But heading into next year’s election, political considerations could tempt Bush to try to find some way of softening the blow on steel companies of removing the tariffs.
One option the Commerce Department is considering is a technical adjustment of US anti-dumping rules that could increase duties on steel imports it determines are being sold at less than fair value.
Louis Leibowitz, an attorney for the Consuming Industries Trade Action Coalition, said the White House could offer that “as a sop to the steel industry” but it would probably violate WTO rules and might not have much long-term impact.