Alan Greenspan, the world's most powerful central banker and guardian of the US economy, turned on the White House yesterday when he condemned George Bush's decision to slap tariffs on foreign steel.
While expressing confidence that America's recovery from recession was "well under way", the chairman of the Federal Reserve became the latest and most high-profile critic of Washington's new protectionist regime.
"I happen not to agree with the particular judgment, but I recognise it's a very, very tough judgment to make," he told the committee.
Mr Greenspan supported Mr Bush's controversial tax-cutting agenda last year but made clear yesterday he was remaining true to his free-trade principles.
The Fed chairman was joined in his criticism by the world's other leading central banker, Wim Duisenberg. The chairman of the European Central Bank, speaking on the day that Brussels lodged its well-trailed formal complaint against the US at the World Trade Organisation, described the tariff plan as "deplorable".
Mr Duisenberg said the real cause of the pain being felt by the US steel industry was the strength of the dollar, not a glut of cheap imports. "I'm rather inclined to say this deplorable action by the United States' authorities to protect its steel industry may have something to do with the exchange rate of the dollar as it is being experienced by the American steel industry."
The tariffs would artificially put up steel prices, making life more difficult for US domestic customers. "Those who will suffer most are the American consumers who will have to pay more than they otherwise would have to do for certain products," he said. "I'm thinking especially of the American carmakers and their customers, whose life will be more difficult than it otherwise would have been."
Announcing that Brussels had taken the first formal step in the transatlantic trade row, by reporting the US to the WTO, trade commissioner, Pascal Lamy, said the EU had been left with no choice. "We have to exercise our right to protect our industry and our jobs." Australia and New Zealand have taken similar action.
Critics have accused Mr Bush of playing to a domestic political audience in imposing the tariffs. He faces mid-term congressional elections this year and is thought to be keen to shore up votes in steel states such as West Virginia and Ohio.
As well as joining criticism of Mr Bush's plans to protect the US steel industry, Mr Greenspan delivered an upbeat assessment of the prospects for the US economy. "The recent evidence increasingly suggests that an economic expansion is already well under way, although an array of influences unique to this business cycle seems likely to moderate its speed."
Wall Street analysts said the tone of Mr Greenspan's remarks to the Senate banking committee were noticeably more positive than the testimony he gave a week earlier to the House of Representatives.
Some predicted that the Fed would use its interest rate-setting meeting on March 19 to signal that the risks in the economy are now more weighted towards inflation than recession. However, the Fed is expected to leave interest rates at 1.75%.
