Brussels and Washington extend aluminium and steel trade truce, defusing new-year tariff threats

On December 19, 2023, the European Union prolonged its trade truce with the United States for an additional 15 months. This extension averts the automatic imposition of tariffs on trans-Atlantic trade valued in billions of euros, which would have otherwise taken effect on January 1, 2024.

EU, US multi-billion-dollar trade dispute and tariffs

The October 2021 agreement between Brussels and Washington, aimed at resolving a trade dispute over aluminium and steel inherited from the Trump era, was slated to conclude by the year's end.

However, both parties had been working urgently to reach a resolution and prevent the reimplementation of tariffs on a multi-billion-euro trade. Unfortunately, discussions between US President Joe Biden and EU leaders Ursula von der Leyen and Charles Michel in Washington in October 2023 did not yield a breakthrough. It has been announced that the tariff suspension will be extended until shortly after the inauguration of the next US administration.

Valdis Dombrovskis, the EU Trade Commissioner, said, “This important extension is the outcome of intensive engagement with the US. We are giving our importers and exporters the market stability and business confidence to continue to trade smoothly.”

Tariffs on EU steel and aluminium

In 2018, under the leadership of President Trump, the administration imposed tariffs on aluminium and steel imported from the European Union (EU), asserting that these foreign-made products posed a threat to national security. These tariffs, set at 25 per cent on steel and 10 per cent on aluminium, impacted €6.4 billion worth of trade, as reported by the EU executive.

In response, the EU implemented retaliatory measures by imposing tariffs on various American goods valued at €2.8 billion entering the European market. These targeted products include items such as bourbon whiskey, Harley-Davidson motorcycles, and motorboats.

Lifting retaliatory tariffs

In the 2021 agreement, the EU took a temporary step by lifting its retaliatory tariffs, while the US granted permission for specific quantities of EU-manufactured metals to enter the United States without facing additional duties.

Although the current agreement is celebrated as a significant accomplishment in preventing the reintroduction of tariffs, it remains a setback for EU exporters. They are still burdened with paying substantial levies annually for trade surpassing the designated tariff-free quotas.

Tariff free EU Steel and aluminium entered US

According to data from the Commission, around 84 per cent of the 3.8 million metric tonnes of EU steel and 75 per cent of the 289 million metric tonnes of EU aluminium that entered the US in 2022 were exempted from duties. This exceeded the tariff-free quotas established in the 2021 agreement, as the US granted additional exclusions to EU exporters.

On December 18, the EU's trade chief, Dombrovskis, announced that the temporary agreement would enable both parties to engage in negotiations aimed at achieving a complete and permanent elimination of the tariffs imposed on EU exports during the Trump era.

These negotiations primarily revolve around the concept of a 'green steel club,' which involves imposing taxes on steel producers based on the carbon intensity of their metal. Progress on this front has been hindered by the European bloc's higher environmental standards for imported goods.

Environmental concerns and job protection

The steel and aluminium manufacturing industry stands out as one of the global contributors to carbon emissions. However, the significance of the steel industry extends beyond environmental concerns, as it holds considerable symbolic value in the effort to safeguard American jobs. President Biden is particularly focused on winning support in steel-producing states as he gears up for the 2024 Presidential elections scheduled for next November.