Senior Vice President for International Policy, U.S. Chamber of Commerce
Director, International Policy, U.S. Chamber of Commerce
October 05, 2023
The U.S. and the European Union face a self-imposed October 31 deadline to conclude what officials are calling a Global Arrangement on Sustainable Steel and Aluminum and avoid a renewed transatlantic trade war.
The good news is that the tit-for-tat tariffs Washington and Brussels imposed in 2018-2021 seem unlikely to make a comeback, but the broader goals trade officials set for themselves — to address global excess capacity and carbon emissions in metals production — may remain elusive for now.
In mid-2018, the Trump administration imposed Section 232 tariffs on steel and aluminum imports from nearly every country in the world – including close allies in Europe. The EU retaliated with targeted duties on a wide range of U.S. exports, including motorcycles, bourbon, peanut butter, and jeans.
Seeking to calm the waters, the Biden administration in October 2021 announced a deal with the EU to replace the Section 232 tariffs with a system of “tariff-rate quotas” allowing duty-free imports of EU-made metals up to a level in line with historical trends. In return, the EU suspended its retaliation for two years.
However, today’s negotiations aim to go much further, with Washington and Brussels seeking “to discourage trade in emissions-intensive steel and aluminum products that contribute to global non-market excess capacity from other countries and to ensure that domestic policies support lowering the GHG emissions intensity of these industries,” as the USTR has stated. To achieve these goals, the ultimate aim would have to be to extend the scheme to other major players in metals production.
In addition, the U.S. has been pressing for its exports to be excluded from the EU’s Carbon Border Adjustment Mechanism (CBAM), which technically entered into force on October 1. The CBAM aims to ensure that goods manufactured in Europe, which are subject to a carbon price set under the EU’s Emissions Trading System, don’t face competition from imports made in countries where no similar carbon price is imposed.
Tariffs will be imposed through the CBAM beginning in 2026. This month’s soft launch requires the EU’s trading partners to report the carbon emissions tied to their exports of iron, steel, cement, aluminum, fertilizer, hydrogen and electricity, as Politico reports.
The U.S. and EU appear to be engaging constructively at the negotiating table, but a grand bargain does not appear to be at hand. In June, the USTR requested that the U.S. International Trade Commission (USITC) conduct an investigation to assess the emissions intensity of steel and aluminum produced in the U.S. to inform its negotiations with the EU. The USITC states that it expects to submit its report to the USTR by January 28, 2025 — well beyond the Halloween deadline.
While negotiators seem unlikely to resolve the immense challenges of global overcapacity and carbon emissions this month, the value in averting a renewed trade war is substantial.
It is worth recalling how costly the U.S. Section 232 tariffs proved to be for American manufacturers, consumers, and businesses. The USITC earlier this year found U.S. importers bore nearly the full cost of the Section 232 steel and aluminum tariffs.
The USITC study also found that “U.S. production of steel was $1.3 billion higher in 2021 due to section 232 tariffs,” but “U.S. production in downstream industries was $3.5 billion less in 2021 due to section 232 tariffs.” This finding is in line with past experience and research: Tariffs confer concentrated benefits but impose much larger costs broadly across the economy.
The U.S. Chamber of Commerce is confident the administration will avoid a renewed transatlantic trade war this month. As for the goals of addressing global excess capacity and carbon emissions in metals production, more work will be required. On all of these issues, the U.S. Chamber will remain engaged to represent our members’ priorities.
About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy.
Isabelle Icso, director of international policy at the U.S. Chamber of Commerce, advocates for the Chamber’s international trade and investment priorities before the administration, Congress, and foreign governments.