US, EU Consider Climate-Based Tariffs

FRIDAY, DECEMBER 16, 2022


As instructed by United States President Joe Biden, the Office of the U.S. Trade Representative recently shared a concept paper with the European Union suggesting new tariffs on steel and aluminum from China and other countries producing metals in environmentally harmful ways.

According to The New York Times, the proposal aims to create a group tasked with bolstering domestic industries in a way that also mitigates climate change. The collective, if established, would be known as the Global Arrangement on Sustainable Steel and Aluminum.

Steel Tariff History

In March 2018, former President Donald J. Trump imposed tariffs to affect steel and aluminum imports from other countries across the globe. The assigned duties were 25% on steel products and 10% on aluminum.

Companies that felt they needed to use steel or aluminum from another country—because that product wasn’t made in the U.S., for example—had the opportunity to apply for an exemption.

By June, the U.S. allowed the tariffs to go into effect for Canada, Mexico and the E.U., after months of discussion of possible exemptions. The U.S. Department of Commerce also announced the first round of exemptions, while noting that it would be investigating whether some companies in the market were taking advantage of the duties and raising prices unduly.

In May of the following year, Trump continued work on updating the USMCA, Steel Dynamics CEO Mark Millett went on the record to say he believed a quota system would replace the current tariffs that the steel and aluminum industry were subjected to.

However, some in the aluminum industry were reportedly against the quotas, in fear that they would raise prices on aluminum-dependent goods. That same month, Trump later announced that the U.S. would lift its steel and aluminum tariffs imposed on Canada and Mexico in exchange for a new monitoring and enforcement system that will prevent import surges into the U.S. As a part of the agreement, Mexico and Canada would also lift their retaliatory tariffs on American products.

In July, Trump signed an order that would see the expansion of the use of American-made iron and steel in federal projects. The “Buy American” platform aimed to push the domestic content threshold from 50% to 95%.

By December, officials from Canada, Mexico and the U.S. signed a deal once again. The U.S.-Mexico-Canada Agreement replaced the North American Free Trade Agreement, and both the U.S. United Steelworkers union and the AFL-CIO labor voiced their approval of the deal.

In January 2020, Trump signed an initial trade deal with China that lowered levies on some other goods. The tariff was expected to stay in place, even after the election, as any move to reduce them would hinge on Beijing’s compliance with the terms of a phase-one trade accord.

According to reports, after the first phase went into effect, the U.S. would maintain 25% tariffs on $250 billion of Chinese imports and a 7.5% levy on another $120 billion.

The following month, Trump announced an expansion of tariffs on foreign steel and aluminum, claiming that the existing tariffs were not as successful as he’d hoped in restoring American production.

Under the new program, specific products made of aluminum were subjected to an additional 10% duty and certain steel products were tacked with a 25% tariff. However, Argentina, Australia, Canada and Mexico were exempt from the expanded aluminum tariffs. Those countries, along with Brazil and South Korea, were also exempt from the new steel tariffs.

By August, Trump announced that the U.S. was reinstating its 10% tariffs on raw aluminum imports from Canada beginning Aug. 16, 2020, following a proclamation by the then-president. Canada, then, announced shortly after that it would impose tariffs on $2.7 billion worth of imports from the U.S. in response.

European Tariff Roll Back

Despite experiencing setbacks because of COVID-19, in January 2021 a group of several domestic steel industry associations penned a letter to President Joe Biden, urging him to keep steel tariffs and quotas that were set in place by the Trump administration.

The letter was signed by the American Iron and Steel Institute, the United Steelworkers, the Steel Manufacturers Association, the Committee on Pipe and Imports, and the American Institute of Steel Construction.

The letter referenced the tariff and quota program that was established in 2018 to allow the U.S. to “restart idled mills, rehire laid-off workers and begin investing tens of billions of dollars in new and upgraded plants.”

“Last year, the OECD projected that steel overcapacity would grow to 700 million metric tons in 2020—eight times the total steel output of the United States last year,” the letter read.

“China, Vietnam and Turkey, among others, continue to increase their steel production even as the pandemic has caused demand for steel to drop around the world. Others, such as Korea, Russia, Ukraine and Indonesia, continue to export large and increasing shares of their steel production to other markets.”

The organizations added that continuing the tariffs and quotes was “essential to ensuring the viability of the domestic steel industry in the face of this massive and growing excess steel capacity.”

Months prior to receiving the letter, in May, President Joe Biden told USW that he would keep the tariffs in place until a global solution to the excess production could be negotiated. Soon after, he again said that he would not make changes, pending consultations with U.S. allies.

Regardless of the intentions to keep the tariffs at the beginning of the year, by November, The White House announced a deal between the U.S. and the E.U. to roll back tariffs on European steel and aluminum to lower costs on various goods, reduce carbon emissions and help supply chains get back on track.

The agreement to lift tariffs on some steel and aluminum imports arriving from Europe went into effect on Dec. 1, 2021, as a part of an agreement to ease trading between the two countries. The agreement set a quota allowing a certain amount of steel and aluminum to be imported from the E.U. duty-free, with anything above that level subject to existing tariffs.

As part of the agreement, the E.U. agreed to remove billions of dollars’ worth (25%, respectively) of retaliatory tariffs on bourbon, motorcycles and other American-made products that were previously slated to increase.

In addition, the two nations reported that the agreement was open to any interested country that wished to join and meet the criteria for restoring market orientation and reducing trade in high-carbon steel and aluminum products.

The new steel/aluminum tariff agreement was scheduled to last two years.

Steel Deals with Japan

At the beginning of the year, in February, the U.S. and Japan announced that the 25% levy previously imposed by Trump would be removed from about 1.25 million metric tons of Japanese steel imports annually.

Should Japan go over that amount, however, the tariff would be reinstated on any additional steel imports. According to the U.S. Commerce Department, Japan is one of the top 10 sources of steel to the nation, but only accounts for roughly 4% of all steel imports.

The decision made by President Biden to remove the tariffs arrived as the nation was continuing to mitigate inflation and a shortage of goods. Tariffs on $350 billion of various Chinese goods would reportedly remain intact.

In a joint statement by the two nations, it was reported that Japan would begin implementing “appropriate domestic measures, such as antidumping, countervailing duty, and safeguard measures or other measures of at least equivalent effect” to establish more market-oriented conditions for steel.

The new deal, like the European Union steel and aluminum agreement reached last fall, called for steel imported from Japan to be completely produced in the country for duty-free access to reduce the risk of Chinese steel skirting U.S. tariffs. Unlike the deal, however, Japan did not impose retaliatory tariffs on U.S. goods such as whiskey, motorcycles and denim.

The new deal was slated to take effect on April 1.

US, UK Steel Tariffs Partially Lifted

The following month the U.S. and the U.K. announced in a joint press release that they had reached a deal to partially lift tariffs on steel and aluminum exports from the U.K. The new deal was expected to ease duties previously imposed by Trump in 2018, which placed 25% tariffs on steel imports and 10% tariffs on aluminum imports.

According to the joint statement, the U.K. would be be permitted to export 500,000 metric tons of finished steel and 900,000 metric tons of aluminum into the U.S. duty-free before tariffs take effect. In exchange, the U.K. agreed to lift approximately $500 million worth of tariffs on U.S. products, such as whiskey, blue jeans and motorcycles.

The deal also required that any U.K.-based steel producers owned by companies in China undergo a financial audit to conclude that there are no market-distorting practices that would materially contribute to the non-market excess capacity of steel.

Aluminum producers are also required to prove that products contain no aluminum from China, Russia or Belarus. Shipments are also subject to smelt and cast provisions.

This deal went into effect on June 1.

What’s Happening Now

To promote the trade of metals made with less carbon steel, the U.S. has proposed to the E.U. that the countries establish a climate-related trade deal for the steel and aluminum industries. While the two have reportedly been in talks about the deal since last year, Bloomberg recently shared additional details of the arrangement according to persons familiar with the matter.

In targeting carbon emissions, the climate-friendly metal production standards and overproduction policies, if approved, would be a first of its kind for the nations.

While a copy of the paper obtained by The Times does not mention China, the new requirements could bar the country and others from becoming a member of the green trade group.

According to Reuters, the E.U. already levies tariffs on several Chinese and aluminum products. Every year, global iron and steel production is estimated to emit a combined 3.4 billion tons of carbon—roughly 7% of global emissions. In looking at the countries producing these products, China is noted to be one of the largest, producing more than 60% of the world’s steel and 57% of its aluminum.

While the topic is still being debated and has yet to be reviewed by U.S. and E.U. unions, officials predict that there would likely be intense discussions over how exactly the carbon emissions would be measured and where the tariffs would be set. Officials expect that more data will need to be gathered before said plans could be finalized.

It is also unclear as to what legal authority would be used by the U.S. to impose the new green tariffs.

According to the concept paper, thus far, a tiered system has been proposed that would rise with the level of carbon emitted from the production of specific steel and aluminum products. The tariff rate would reportedly start at 0 for the cleanest products from member countries. While the paper does not specify rates, it does represent the tiers as X, Y or Z, which would increase over time.

Additional levied tariffs would also be applied to any product coming from countries outside of the proposed consortium. The method is designed with the hope of encouraging countries to clean their industries and would “incentivize industry globally to decarbonize as a condition of market access,” the paper says.

Although no officials have responded to requests for comment at the time of writing, one E.U. official shared with reporters that the country and the U.S. were continuing to discuss ways to continue and deepen their work on the proposed arrangement.

   

Tagged categories: Aluminum; Building materials; Business management; Business operations; Carbon footprint; Carbon Steel; Economy; EMEA (Europe, Middle East and Africa); Emissions; Environmental Controls; EU; Galvanized steel; Good Technical Practice; Government; NA; North America; Program/Project Management; Stainless steel; Steel; Structural steel; Weathering steel

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