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November 2, 2021

Goodbye for now, 232: Breaking down the G20 US-EU agreement on steel and aluminum

By Julia Friedlander and Clete R. Willems

In a joint address at the G20 summit in Rome on Sunday, President Biden and European Commission President Ursula Von Der Leyen announced a pause in the clash over steel and aluminum tariffs. First put in place during the Trump Administration in 2018 to supposedly safeguard US national security, the “232s” have strained relations on both sides of the Atlantic. As details to the new agreement are revealed, Julia Friedlander and Non-resident senior fellow Clete Williams, who both served on the National Security Council when the tariffs were imposed, break down some of the most important issues and their implications for innovative trade policy going forward.  

What was the purpose of the 232 in the first place?

The idea was to help the US producers. We specifically wanted to support capacity utilization in US steel plants. Our goal was to get utilization to more than 80% which would help ensure the industry was healthy and maintained a sustainable production level. China, which had four times the steel production capacity, was the primary culprit. President Trump, however, was still focused on a global response instead of singling out China. The 232 was justified on the basis that some of these steel products are essential to US national security, but the true motivation behind the tariffs was improving capacity utilization in the industry. 

Do you think that it was the successful choice?

Overall, we saw mixed results. The positives include: increasing capacity utilization from the low 70s to more than 80% today, higher steel prices in the US–which helps industry, and excess capacity issues receiving more attention from the public and policymakers than before. The negatives include: harming the US-EU trading relationship, making our allies feel that they were being treated as a national security threat when the problem was and is China, and higher steel prices contributing to inflation and slowing the economic recovery. On top of all that, we still have not solved the problem of excess capacity. Overall the industry is in a much better place than when we implemented these tariffs which is why it’s time to look at modifying these measures. 

What do you think of the deal? What does it look like to you?

The deal is very positive on the whole, especially after trying to convince Trump to not to use the 232 tariffs. After that did not work, we attempted to exempt America’s allies. Once that was rejected, our third attempt was to do a tariff-rate quota (TRQ) which lets the EU import most of the steel duty free and only after that import quota was filled would tariffs apply. This would have been less disruptive to trade than a pure tariff measure. Trump didn’t go for it but Biden did. By doing so Biden liberalizes a significant amount of trade as long as the 232 framework remains in place.

Other elements of the deal look at broader issues. In addition to the TRQ, you also have the elimination of retaliatory measures and the end of related WTO disputes. The US and the EU will also set up a work program to deal with the issue of excess capacity as well as the carbon intensive nature of steel and aluminum production. The deal marries some of our goals on excess capacity and climate with carbon border adjustments, and it’s good that the US and EU are getting ahead of it. 

What next steps do you think the US should take and how can we bring in other countries?

It is great that the administration is opening the door for that. In addition to the EU deal, the administration announced they were in consultation with the UK and Japan on similar arrangements. Just like the EU, these are two other entities which have been hurt by Chinese excess capacity. We also need to work on the climate issue with them, especially since they may have less energy-intensive ways of handling steel and aluminum production, such as Norway. It would be great to expand this deal further by also engaging with Brazil and South Korea. Those are pure quota models, and it would be nice to see those converted to TRQs as well.

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