The deadline for the US and the European Union (EU) to reach an agreement over steel and aluminum tariffs is approaching fast, which could result in the reimposition of billions of dollars’ worth of trade tariffs on each other’s goods. US negotiators put forward a proposal to impose tariffs on carbon-intensive manufactured products, whilst countries that join the agreement, which will be open to nations outside the EU, would face lower tariffs or none at all, compared to those that do not. The EU’s response did not include any form of tariffs. The EU believes the proposed tariffs, which only target non-EU countries and are designed to drive the markets away from carbon-intense processes, go against the rules of the World Trade Organization.
Karl Tachelet, deputy director general of the European steel association Eurofer, stated that the US proposal lacks ambition aimed at taking advantage of the opportunity to tackle excess capacity or decarbonisation. Without an agreement that can be reached by October, the EU and the US risk imposing tariffs on each other’s goods. These could expand from steel to French wines, US rum, vodka, and denim jeans. Officials in Brussels believe that the negotiations are another attempt by the US to push the EU into taking a tougher stance on China. The US does not believe that the EU proposal goes far enough. It makes “tweaks around the margin” without dealing with the problematic issues that drove the US and the EU to call a truce, to begin with.
US negotiators are seeking an exemption from the EU’s carbon border tax, which imposes a tax on some imported goods to avoid European businesses being undercut by cheaper products made in countries with weaker environmental standards. Such an exemption is a non-starter for Brussels as it constitutes a breach of WTO rules and cannot be equated to US steel and aluminum measures. Europe is also concerned that although the tariffs were deemed illegal by the WTO, they could be reintroduced. Failure from either side could result in the reimposition of existing trade tariffs spreading to other products, potentially igniting the next major transatlantic trade fight.
The talks ought not to be couched as a bilateral negotiation over steel and aluminum but should be broader to drive the market towards harmonised carbon pricing to decarbonise the economy. Parallel to this, negotiations should include efforts to rekindle the proposed free trade agreement talks and avoid adding further stress to the EU-US relationship. If either side insists on using decarbonisation as a pretext for positioning against the other, the risks effecting countries outside of the negotiation should be considered.