THE US averted a full-scale trade war with Europe at the eleventh hour after President George W Bush decided to scrap steel tariffs.

The US steel industry had been protected for 21 months by the tariffs, imposed on imported steel.

Matters came to a head last month when the World Trade Organisation outlawed the protectionist measures.

That ruling prompted the European Union to threaten a wide range of its own tariffs on US goods unless America removed the barriers to free trade.

The EU was backed by other economic heavyweights, such as Japan, in a show of force that pushed the two sides to the brink of commercial war.

Trade and Industry Secretary Patricia Hewitt said she was delighted by the announcement, saying: "Our steel industry will be hugely relieved."

The minister said the tariffs had cost UK firms, including Anglo Dutch steelmaker Corus, thousands of tonnes of lost exports. CBI director-general Digby Jones said businesses on both sides of the Atlantic would welcome the news that the US government had "come to its senses".

He said: "US steel producers may have seen some short-term benefit, but US steel users paid the price, in jobs and loss of competitiveness.

"It would have been absurd to inflict even more unnecessary damage on America and Europe by forcing justifiable EU retaliatory action.

"Everyone loses when politicians engage in trade wars."

Mr Jones said there were fears in the US about foreign competition, just as there were in the UK about jobs being lost to India, but he warned that hiding behind "artificial barriers" would only provide a temporary respite.

Malcolm Bruce, Liberal Democrat trade spokesman, said: "President Bush must realise as the leader of the world's largest economy that the US has to set the example, particularly in world trade. If the biggest and richest economy in the world resorts regularly to the crudest of pork-barrel domestic policies, then the future of world trade is bleak."