By Stephen Evans BBC North America Business Correspondent

Steel tariffs raised costs for US industry

Nobody has ever quite defined the "The Law of Unintended Consequences", or at least not with any precision.

It is one of those maxims that is often cited without anybody quite knowing what it means.

Broadly, the rule seems to be that policies have a nasty habit of bouncing back in unpredictable ways.

What seemed like a jolly good idea at the time can come to haunt a politician at the polls.

It is a law that Mr Bush may now be learning as he contemplates the impact of steel tariffs.

He imposed what amounted to a 30% tax on imports of some steels to the United States a year and a half ago.

The administration, in tune with the domestic steel industry, argued that foreign competitors were unfairly dumping their products on US shores.

US steel-makers needed protection so they could re-organize themselves to fight back at the perfidious foreigners, the argument went.

Global row

It was a view that few outside the US accepted. When the global row reached official levels, the World Trade Organisation (WTO) sided with the European Union (EU), whose steel companies had complained loudly.

Now, though, potentially more damaging opposition to the tariffs is emerging - at least, more damaging for President Bush.

US steel users - the customers - say that they are being squeezed.

The tariffs allowed domestic steel producers to raise prices because the price of competing imports was higher, and the higher prices meant higher costs for a myriad of metal-bashing companies.

Higher costs

Jim Zawacki, the president of GR Spring and Stamping in Grand Rapids, Michigan, says his costs went up by 40%.

"My prices have gone up. My profits have gone down. In my industry, people are closing. We've had four stampers close their doors since the start of the tariffs," he said.

Or take the case of the Morgal Machine Tool Company in Springfield, Ohio which has laid off workers because of the tariffs.

It makes pulleys and sprockets - though not like it used to.

Before the tariffs, it would import steel to the US, then process it. Now it imports to Canada and processes there, according to Jim McGregor who runs the company:

"What happens is that the steel lands in Canada instead of America. They blank the part out in Canada, and ship the parts to the United States. When the part comes across the border there's no 30% tariff on the steel," he explains.

Job losses

So a measure meant to protect US jobs and businesses is actually destroying jobs and pushing businesses abroad.

The US International Trade Commission (ITC) has calculated that the tariffs reduced the earnings of steel-consuming firms far more than they increased the income of steel-makers.

And Gary Hufbauer of the Institute for International Economics in Washington thinks that, on balance, more jobs have gone in steel-using firms than have been protected in steel-making ones, which employ far fewer overall.

The steel makers reply that a crass balance sheet of jobs lost versus jobs saved misses what tariffs were about.

They were meant, they say, to give the industry time to reorganize. It says it is doing so, but still needs the full three years of the tariffs.

Pressure

But Mr Bush is now under some pressure.

The EU is threatening retaliation targeted closely at US firms in districts that Mr Bush needs to win in the 2004 presidential election.

And the steel users have a very efficient publicity campaign underway.