On October 31, 2021, at the Group of 20 (G20) Summit, the United States and European Union announced an interim agreement to relax the Trump-era worldwide Section 232 tariffs on European steel and aluminum articles and derivatives, and subsequent retaliatory tariffs on various US goods. The Biden Administration is also pursuing similar deals with the United Kingdom and Japan as part of a global strategy.
The Section 232 Tariffs
In 2018, the Trump Administration had determined that the impact of excess global steel and aluminum production capacity on the domestic steel and aluminum industries—long a bipartisan concern of US lawmakers—posed a threat to the national security of the United States. As a result, the United States invoked Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. § 1862—a Cold War-era law that authorizes the President to adjust imports that threaten US national security—to impose an additional worldwide twenty-five (25) percent ad valorem tariff on steel and ten (10) percent ad valorem tariff on aluminum. In 2020, the United States extended these tariffs to cover derivative steel and aluminum articles such as nails, tacks, staples, wire, and cables. As a result, US metal and metal derivative importers have been forced to bear the added costs, to pass those costs downstream, or to restructure supply chains to avoid them.
Multilateral discussions in the years since have seen Australia, Canada, and Mexico exempted from these tariffs entirely, and resulted instead in absolute quotas for imported steel or aluminum (or both) products or derivatives from Argentina, Brazil, and South Korea. Now, Washington and Brussels have also reached a consensus to stave off some of the measures.
The US–EU Agreement
According to a Department of Commerce fact sheet, while the arrangement will not eliminate all import measures on European steel or aluminum, the United States will substitute for the tariffs a tariff-rate quota (TRQ), effective January 1, 2022, whereby only imports above a specified annual volume, reset annually, will be subject to the same respective 25 or 10 percent tariff. The steel TRQ will be 3.3 million metric tons (MT), and the aluminum TRQ will be 18 thousand MT for unwrought articles and 366 thousand MT for semi-finished articles. EU derivatives will no longer be subject to any Section 232 measures. The exclusion processes will remain in place; active exclusions will be automatically extended through 2023 and not counted against the TRQs.
In return, the EU will remove 25 percent “rebalancing” tariffs levied in response on US goods such as bourbon, orange juice, motorcycles, and jeans, some of which had been slated to rise to 50 percent in December. The parties have also dropped challenges related to the Section 232 and rebalancing tariffs before the World Trade Organization (WTO) as of November 5, 2021.
A Global Framework
In line with stated Biden Administration trade policy priorities, which we have noted in the context of other contemporary protective trade measures, the agreement aims to address not only the overcapacity that first prompted the Section 232 tariffs as it affects the American labor force but also the “carbon intensity” of the industries, according to a joint US-EU statement. The parties plan to reach a final, “global resolution” by 2024, inviting “any interested country that shares our commitment to achieving the goals of restoring market-orientation and reducing trade in carbon intensive steel and aluminum products” to join the “global arrangement.” Consultations are already underway with the United Kingdom and Japan.
The framework directly targets China, the producer of nearly half of the world’s steel, which the White House accuses of “flooding” the world market with “cheap,” “dirty” metals. The tariff relief on EU steel products will include enforcement provisions to require that those products are “melted and poured,” not just finished, in Europe to avoid “leakage” of Chinese steel into the global market.