As the US imposes a flurry of new protectionist measures under President Joe Biden, it continues to be haunted by previous efforts — not least the tariffs on aluminum and steel that President Donald Trump deemed necessary. These “Section 232” levies, named after the trade act under which they were introduced, are set to return to their original scope in early 2024, when a deal agreed by Mr Biden and the EU is due to expire .Thank you for reading this post, don't forget to subscribe!
The deal allows the US to continue exporting most exports to the EU as before the tariffs. Its purpose was to give both sides time to reach a comprehensive agreement called a “Global Arrangement on Sustainable Steel and Aluminium” (GSA). Negotiators hoped this would reduce excess capacity in steel markets and create a joint path to decarbonization without crushing domestic producers. “These conversations should be on the simpler end of the spectrum. They’re just about two products, and the US and EU have very similar profiles in these industries,” says Todd Tucker of the think-tank Roosevelt Institute. But at a summit on October 20, top EU officials and Mr Biden acknowledged they needed more time to negotiate.
Image: The Economist
It is unclear whether such an agreement will ever be reached, or whether it is even needed when it comes to additional capacity. Paul Butterworth of Crew, a consultancy, notes that data from the OECD Club of Mostly Rich Countries shows steel mills around the world are being used at the highest level since 2000. This is because China restructured its steel industry in 2017. Killing unlicensed producers (see chart). Nevertheless, the US and EU have put in place an arsenal of measures to protect domestic markets from state-sponsored imports. Steel shipments from China to the EU have halved since 2015-16, and there is no role for the US. Despite the harm caused by such measures, neither party wants to get rid of them completely. European negotiators argue that existing policies are sufficient to address excess capacity, and they are not willing to commit to additional tariffs. Americans want more barriers.
Reaching agreement on a carbon levy is an even more difficult task. The EU’s plan to tackle climate change is based on a carbon price that applies to aviation, power generation and industry, and will soon cover more of the economy. Its officials argue that the natural complement is a tariff on the carbon content of imported steel and other high-energy goods in line with the European carbon price. This is being introduced and the only exception will be for places that impose their own carbon prices – something the majority of the US does not do, and never will. It uses regulation and subsidies to make the industry greener. Reconciling these two approaches into a common trade policy is a nightmare.
The US proposal is for a club that imposes a common carbon tariff on aluminum and steel, with a higher tariff for non-members. For its part, the EU would prefer an entirely different kind of club, based on legally binding targets for decarbonization and state-aid restrictions. Club members would be free to impose carbon tariffs, but only in line with WTO rules, which the EU believes would allow its border adjustment.
In theory, both sides still want a GSA. The reality may be different. “The EU will now resort to what it knows best: damage control by continuing negotiations and reducing the threat,” says David Kleiman of Bruegel, another think-tank. The result will likely be an extension of the current reform, and no compromise.
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