Industrialised countries are ganging up against the United States in an escalating trade war that threatens to trigger a chain reaction of protectionism, setting back the goal of free trade and open markets worldwide.
Japan this week said it would follow the European Union in imposing tariffs on some US steel exports. This is in retaliation for a US decision to impose duties of up to 30 per cent on imported steel to protect its near-bankrupt domestic steel industry.
Angry critics of the US say a decision last week to raise its domestic farm subsidies by 80 per cent further jeopardises upcoming negotiations for a new global trade agreement.
The full fury of US allies was vented at a meeting of the Organisation for Economic Co-operation and Development in Paris on Thursday. Any increase in protectionism "will hurt growth prospects where fostering growth is most essential," said Mr Horst Köhler, managing director of the International Monetary Fund; Mr James Wolfensohn, president of the World Bank; and Mr Michael Moore, director general of the World Trade Organisation in an unprecedented joint reproach. "They send the wrong signal, threatening to undermine the ability of governments everywhere to build support for market-oriented reforms."
Any hope for a new approach from Washington rests with the US Congress, where the progress of a trade bill that President Bush desperately wants is being closely watched from abroad. Yesterday the Democratic-controlled Senate failed, again to secure passage of the bill that would give Mr Bush "fast-track" authority to conduct trade deals.
In the current climate of protectionism in the US, most countries would not sign a trade accord with the Bush administration that could be changed by Congress. But, with fast-track authority, the US could negotiate trade deals that Congress could vote down but not tamper with. Presidents had fast-track authority from 1974 until 1994, but Congress has refused to renew it since then.
Mr Bush slapped the tariffs on steel imports in March as an inducement to Congress to give him what he wanted, but the move has backfired as condemnation of the US mounts across the world.
With elections in November, senators are concerned that thousands of US jobs are at risk due to cheap imports from abroad. Amendments to the Bill to protect workers have led to endless wrangles. Yesterday a Republican-led filibuster on a Democratic provision to help steel workers forced out of work effectively shut down debate for the week.
Japan, in its first trade action against the US, said on Thursday it would impose 100 per cent duties on $4.9 million (€5.32 million) worth of US steel products, a largely symbolic move which could be extended later. The EU plans to impose tariffs in two phases, starting in late June with 100 per cent duties on $364 million worth of US exports such as fruit juice, a major export from Florida where Mr Bush's brother Jeb is governor.
Yesterday was the final day of of the two-month period under WTO rules to settle a dispute before it reaches WTO level but the US had not agreed late yesterday to offer compensation for the loss of steel exports, which would have prevented EU retaliation. The 30-nation OECD in its communique said: "We reaffirm our pledge to reject the use of protectionism."
