EU and US look to gang up on China after trade war truce

ROME — Europe isn’t thrilled about the terms of Saturday’s trade truce with the U.S. but EU officials finally conceded it was worth accepting Washington’s conditions in order to shift focus to the common enemy: China.

The ceasefire is intended to end the bitter trade war that former U.S. President Donald Trump ignited in 2018 by slapping high tariffs on EU steel and aluminum on the grounds that they were a threat to America’s national security. While Saturday’s deal removes those tariffs, Brussels is still angry that the legal basis for Trump’s duties — the supposed European security threat to America — still remains in place and is being used to place limits on EU metal exports.

The clash over metals has been one of the darkest clouds looming over transatlantic relations in recent years and one of the chief reasons to end it was an increasing desire among European and American officials to cooperate on combating what they see as massive overcapacity in Chinese steel mills, fuelled by government largesse.

Saturday’s deal will set up a “global arrangement on sustainable steel and aluminium” that includes “like-minded” nations. That’s diplomatic code for maneuvering against Beijing’s overcapacity. Brussels and Washington also pledged to collaborate on producing steel in a more environmentally friendly way.

U.S. President Joe Biden stressed the steel truce fit with his vision of a global front against Beijing. He styled the deal as part of moves to “prove to the world that democracies — democracies — are taking on hard problems and delivering sound solutions. The EU and U.S. will continue to be the closest of friends and partners.”

“These arrangements will … restrict access to our markets for dirty steel from countries like China and counter countries that dump steel on our markets,” Biden added.

In a similar vein, EU Trade Commissioner Valdis Dombrovskis said the plan was to focus on “how to restrict market access for nonparticipants that do not meet … the conditions for market orientation, or that do not meet standards for low carbon intensity.” Beijing knows full well who he’s talking about.

Bitter pill

There’s much in the deal, however, that leaves a bitter taste in European mouths.

The EU had originally hoped that Biden would simply unwind the Trump-era tariffs and pull back from Trump’s legal basis for action against Europe: Section 232 of the Trade Expansion Act of 1962. Citing Section 232 identifies Europe as a threat to America’s national security.

Biden, however, has found himself hamstrung by his own need to keep core steelmaking constituencies on side, and his deal with Europe is not the complete row-back that the Europeans had wanted.

The deal is that — in return for the removal of tariffs — the EU will be able to export an annual quota of 4.4 million tons that are not subject to national security duties. Some 1.1 million tons of this total stems from a clause that will only be valid for the next two years. Exports above the 4.4 million tons will be subject to the existing 25 percent levy from the Trump era.

In practical terms, this is an immediate relief to the European steel industry. In the years before the trade war and the coronavirus pandemic, EU exports generally undershot this level. Data from Eurofer, the European steel lobby, showed that EU exports to the U.S. hit a high of 4.1 million tons in 2014. (Of course, the Europeans will end up paying high tariffs again if EU exports surge past the quota limit in the post-pandemic recovery.)

The European Commission is bitter about having to accept any form of quota, which it regards as illegal because it is still based on the hated Section 232.

“For us this [the deal] does not constitute the end destination,” Dombrovskis said on Sunday. “The destination, indeed, should be complete removal of the 232 tariffs,” he added.

This view was echoed by the U.S. Chamber of Commerce, which said in a statement that Washington should drop the “unfounded charge that metal imports from the U.K., Japan, Korea, and other close allies represent a threat to our national security.”

Lipstick on the pig

At heart, the EU objection is legal as the two sides are at odds over the steel arrangement’s compatibility with World Trade Organization rules. The U.S. failed to get the EU to fully withdraw its case against the legality of the tariffs, but Brussels agreed to “suspend” the case. The EU also issued a separate statement to reinforce its point that the U.S. measures are incompatible with global rules.

One EU official noted that a Commission representative had last week described the impending deal to diplomats as a “pig requiring all the lipstick in the world.” Another Western diplomat struck a more pragmatic note, though, saying: “It’s a pig but it’s better than a continued distracting fight. On 232, the EU agreed to quotas which they hate but … they negotiated a big quota that also allows for growth.” 

Looking ahead, however, the two-year period for at least part of the deal adds uncertainty. New negotiations will have to take place close to the next U.S. presidential election, and the European Commission’s change of leadership. Both events will take place in 2024.

Barbara Moens contributed reporting.

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