The big trade news over the weekend was a resolution of the U.S. - EU Section 232 tariff disputes. Two key documents are this USTR fact sheet and this EU-US joint statement. The core of the agreement is as follows:
The United States will replace the existing tariffs on EU steel and aluminum products under Section 232 with a TRQ under Section 232. Under the TRQ arrangement, historically-based volumes of EU steel and aluminum products would enter the U.S. market without the application of Section 232 tariffs to meet the demands of downstream users.
There are a number of other potentially important aspects as well, some of which I'll mention below. Here are a few thoughts I had on these developments so far.
1. Is any of this legal? I have doubts that the new U.S. TRQs are consistent with WTO law, but the original measures were of questionable legality, as was the retaliation, so I'm not sure it's worth getting too worked up over the legal aspects here (although they are certainly interesting as an intellectual exercise).
2. Politics often leads to bad policy. I would have preferred a straightforward repeal of the Section 232 tariffs, but I don't have to deal with the same political constraints the Biden administration does, and I can see how they did the political calculation that pushed them in this direction. I wish they would double-check the math on the calculation, but regardless, they have elections to fight and there are groups whose support they need.
3. How economically harmful will the new TRQs be? In terms of the economic impact of the new arrangement, the precise figures for the TRQs are the key to whether there will still be some lingering restrictiveness under the measures. If you make the in-quota amount for zero tariffs large enough, the measure will not restrict trade much. If, however, the amount is on the lower side, it can trigger various kinds of trade disruption in the implementation. Borderlex reported the figures as 3.3 million tons for steel, plus exclusions worth 1.1 million tons; for aluminum, 18,000 metric tons of unwrought aluminum and 366,000 metric tons of semi-finished wrought aluminum. But I can imagine there will be some uncertainties in how this is implemented (e.g. what are the rules of origin for determining whether something qualifies as EU steel).
4. Similar agreements with other trading partners are on the horizon. Despite any economic or legal concerns I have with the new arrangement, I think it puts us in a better place than we were, and I hope the Biden administration negotiates similar arrangements with other countries. The U.S. fact sheet suggests this might happen: "The United States looks forward to partnering with other trading partners and key stakeholders to address the common global challenge of steel and aluminum excess capacity." (It probably won't happen between the U.S. and China, of course, but imports of Chinese products are so restricted anyway by normal trade remedy measures that I'm not sure it would make much difference).
5. "Working with allies" is happening. I think the Biden administration is doing a pretty good job on "working with allies." With regard to the EU, we now have Boeing-Airbus and Section 232 tariffs out of the way to some extent, and the new Trade and Technology Council providing an opportunity for productive conversations.
6. The WTO panels can stop their work. It's great that the EU-US WTO disputes related to the Section 232 tariffs and the retaliation have been suspended. I've been skeptical that WTO disputes are productive in situations where one party is invoking national security.
Also, there is an interesting agreement to use DSU Article 25 if they to pick up these disputes again at some point.
7. Is there much hope for the carbon initiative? The U.S. press release has this statement from Ambassador Tai: "The first ever carbon-based arrangement on steel and aluminum trade contemplated by the agreements would create greater incentives for reducing carbon intensity across modes of production of steel and aluminum made by American and European companies." A White House fact sheet on this issue is here, and says:
Together, the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply. This arrangement will be open to any interested country that wishes to join and meets criteria for restoring market orientation and reducing trade in high-carbon steel and aluminum products.
I feel like the Biden administration and other folks on the left are going to have a lot more trouble than they think with getting U.S. industry on board with their decarbonization goals. The industry will always support restricting access to the U.S. market, of course, but I'm not sure how excited they -- some producers in particular -- will be about reducing carbon intensity as a general matter. As a result, I'm not convinced this cooperation is going anywhere in the short-term (beyond measures such as tariffs on Chinese steel due to its carbon intensity, but we already have tariffs on Chinese steel). The industry may just play along, while also watching the political calendar to see whether this might all go away at some point.
