What’s next for US Section 232 tariffs on EU steel, aluminum?

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Talk of trade meetings are usually met with a yawn and click to the next news item. However, last week’s meeting between the E.U. and the U.S. in Pittsburgh may be one event worth following.

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E.U., U.S. and the fate of Section 232

tariffs text on top of US currency

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The inaugural Trade and Technology Council (TTC) meeting was attended by both Secretary of Commerce Gina Raimondo and U.S. Trade Representative Katherine Tai, while the EU delegation included trade chief Valdis Dombrovskis.

So, in theory at least, that is enough political heft to have meaningful negotiations.

And what is there to negotiate, you may ask? In short, those Trump-era U.S. tariffs on European steel and aluminium.

Back in 2018, former President Donald Trump imposed hefty duties on imports of steel 25% and aluminium 10% from Europe and other countries based on national security grounds (using Section 232 of the Trade Expansion Act of 1962). While a solution has been reached with Canada and Mexico, there isn’t one with Europe, a recent Financial Times report states.

Back in May this year, the two sides reached a detente. Europe agreed to delay the ratcheting up of its retaliatory tariffs on clothing, bourbon, and motorcycles until Dec. 1.

But the clock is ticking.

E.U. trade chief Dombrovskis is says the E.U. needs to decide what it’s going to do about that deadline by early November.

US perspectives on Section 232 tariffs

Will the Biden administration drop the tariffs?

Many large metal consumers would like them to do so. However, there is little chance of that happening.

The tariffs have the support of many steel and aluminium mills in states where the president will want to hold or win next year. Alienating those voters is the last thing on his mind. The United Steelworkers also support the tariffs, as does the AFL-CIO. Again, Biden will not want to lose the support of the unions when he has made so much of his trade policy being “worker centric.”

Alternative resolutions

So, what other solution could there be?

The favorite seems to be some kind of quota system, somewhat like Canada’s deal with the U.S. on aluminum. Such quotas are usually based on an average of the last three years. Of course, the last three years have been distorted by those same tariffs and a global pandemic. Behind-the-scenes negotiations may be around what time frame would be politically acceptable to both sides.

Another thorny topic of agreement is the rules of origin. However, there is little evidence of any violations, the U.S. in particular will probably want to see a tightening of monitoring backed up by regulation to ensure non-E.U. material isn’t simply funnelled through the continent as if it were European.

Europe’s own anti-dumping tariffs introduced over the last 12-18 months will help in this respect.  Both areas face the same problem of dumped or low-cost imports. Furthermore, both are keen to ensure a fair and level playing field for their domestic producers. Principles, if not necessarily rules, are aligned here.

So, watch this space, as this may not be “just another talking shop.” If two sides reach an agreement, the resumption of Section 232 tariff-free imports for steel and aluminium could have a significant impact next year.

European mills, particularly aluminum mills, have precious little metal to offer at the moment. Any change in supply would likely be gradual but could herald the return to some degree of normalcy between the two trading blocs later next year.

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