Steel prices have been depressed worldwide for years

The world has been waiting to see the shape of the trade policy of US President George W Bush, and as the BBC's Rodney Smith says, it looks ugly. The US president has asked his government's International Trade Commission to investigate whether imports of steel into the United States are harming the American industry. The complaint of unfair trade practices, brought forward by the powerful US steelworkers unions, is that countries like Taiwan, Japan, Russia and producers in the European Union have been selling steel into the US market at a lower price than it costs them to make it; in other words, steel dumping, usually to gain market share. And illegal dumping can be punished with trade sanctions. US steel manufacturers are in deep trouble, squeezed by the oldest enemy of the steel mills, excess capacity - too many mills - and a swiftly slowing economy. Steel manufacturers and unions say low priced imported steel has been responsible for 18 bankruptcies in the US steel business in the past four years.

But research by the European Union, which could be hit by trade sanctions, shows a different picture. The EU executive, the European Commission, says the evidence is that any dumping in the US - selling below cost - is internal. The Commission points to the 18 "Chapter 11" cases, the steelmakers in bankruptcy administration, whose shareholders and workforces are understandably anxious to save them at any cost. It says they are selling steel at below cost to undercut their healthier rivals. The EU has reason to be anxious. In a reversal of the usual role vis-à-vis the US, EU steelmakers already have rationalised substantially, driven in part by the creation of a reunified Germany, and the race to join the single currency.

EU Trade Commissioner Pascal Lamy spoke for all EU steel manufacturers when he said of the US announcement to investigate the steel sector: "This is bad news, the cost of restructuring the US steel industry should not be shifted onto the rest of the world."

President Bush is using as his lever - borrowed from the US steel industry - the allegation that non-US steel makers are unfairly subsidised by their governments. This may be the hidden agenda, if there is one. The new US administration is deeply keen to prise foreign industries away from "unfair" state subsidies to suit the US ideal of free trade wherever it can. While some non-US steelmakers undoubtedly are still subsidised, it is not true of all. The accusation appears to be targeted at China. Few doubt that the World Trade Organisation's most high-profile and long-awaited membership candidate does subsidise its huge steel industry. However it exports only about 1% of its output to the US - so any pain it may feel as a result of US action is unlikely to be severe. But it is also unlikely to improve relations between Beijing and Washington.

The US steel industry is obviously pleased at having found a willing ear; it pleaded with former President Bill Clinton to take the required action, a so-called Section 201 investigation, but the Democrat president refused to be drawn. Curiously, the United States may have outgrown Mr Bush's brand of protectionist enthusiasm. One of the biggest blocks he could face within the US is the Consumer Industries Trade Action Coalition. In a warning that is likely to win backing from some major US manufacturers, its chief, Janet Kopenhaven, said after the Bush announcement that import restraints would affect the lives of millions of US workers in industries ranging from car production through construction to electrical equipment and heavy engineering. In fact, it says, putting up barriers to foreign steel imports - when tighter demand would be bound to raise prices - could cost US consumers $2bn to $3bn a year. That is $565,000 for every US steel job.

President Bush might find that the US steel industry, big as it is, is not as big as some of America's other special interest groups - especially those that themselves earn their money from abroad. In the country that professes to spearhead the global economy, that could amount to quite a lot.