Europe warns of retaliation over US steel tariffs

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Europe was on the brink of a trade war with the United States last night, as Britain and the European Union warned of retaliation after President George Bush imposed tariffs of up to 30 per cent on a range of steel imports.

The White House decision, which could threaten jobs across Europe, provoked a chorus of international outrage. Mr Bush formalised the unilateral move despite the personal intervention of Tony Blair, who twice appealed to him to step back.

Downing Street released details of a letter from the Prime Minister urging Mr Bush to reject tariffs, and said the two men had discussed the issue by telephone last week. But a spokesman admitted Mr Blair had not received a reply. The transatlantic dispute reopened the bitter row over "steelgate", with Mr Blair facing fresh criticism in the Commons yesterday for supporting Lakshmi Mittal, the millionaire Labour donor whose American subsidiary lobbied heavily for tariffs to be imposed.

Mr Blair has been attacked for signing a letter backing Mr Mittal's bid for Romania's state steel industry, even though he employs few people in Britain.

Downing Street backed retaliatory EU trade sanctions after Romano Prodi, president of the European Commission, said it would have no alternative but to react to protectionist measures from the US. The EU said it would complain to the World Trade Organisation about the move.

Pascal Lamy, the EU trade commissioner, said: "The US decision to go down the route of protectionism is a major setback for the world trading system. We will take whatever measures are necessary to safeguard our own market." Russia, Japan, South Korea and Brazil also vowed to fight back.

In a statement, Mr Bush said the tariffs "will help steel workers, communities that depend upon steel, and the steel industry adjust without harming our economy". The duties range from 8 to 30 per cent and affect 10 steel products including flat-rolled steel. They take effect on 20 March and run for three years.

Senior figures in the steel industry believe the imposition of US import tariffs will hit European steel exports to America, now worth $3bn. But they also fear the move will encourage a flood of cheap steel imports into Europe, with serious consequences for an industry suffering from surplus capacity across the world.

The Conservatives said the imposition of tariffs was the biggest threat to the steel industry and described Mr Blair's backing for Mr Mittal as "extraordinary".

Plaid Cymru said Mr Blair's attempt to prevent tariffs was merely "making half-hearted empty gestures late in the day" to deflect criticism from the Government's support for Mr Mittal. Adam Price, the party's treasury spokesman, said: "We have known these tariffs were coming for eight months. Where has the Government been?"

A Downing Street spokesman said: "Tariffs are not in the interests of the world economy. They are also against the interests of US consumers, who will have to pay higher prices for steel imports."

European officials believe the US administration is on the brink of sacrificing its free trade credentials to boost Republican electoral prospects in America's "rust-belt" states.