Omar Nashashibi Omar Nashashibi

The Global Politics of Steel

March 29, 2024

By Omar S. Nashashibi, partner, The Franklin Partnership, LLP

As has been the case for much of the past five decades, we find steel imports at the center of trade-policy discussions in Washington, D.C. This being an election year, it is no surprise that steel and unions are top of mind for politicians. However, what makes this next saga in the trade wars different: The European Union (EU) has joined the fray, and in some ways the fight.

Beginning in January 2026, the EU will implement the Carbon Border Adjustment Mechanism (CBAM), requiring importers of iron or steel, aluminum, cement, fertilizer, hydrogen, cement, and electricity into the 27-nation bloc to pay a tariff based on the carbon emitted during production of those goods. By 2030, that list of affected imports likely will expand. In this transitional phase, companies that ship steel into the EU must file quarterly reports on their direct and indirect emissions.

Importers of the covered steel, aluminum and other goods have begun to report their Scope 1 (direct emission output); Scope 2 (emissions from the energy sources used); and Scope 3 (indirect emissions from the supply base). The EU’s carbo-tariff structure is currently in place, and officials in Washington have taken notice.

Late in 2023, the Biden administration and the EU failed to reach an agreement on a joint Global Arrangement on Sustainable Steel and Aluminum (GASSA), which, essentially, would have allowed tariff-free trade of steel and aluminum across the Atlantic. The proposal, pushed by the White House, sought to impose a carbon-based tariff on imported steel from non-GASSA countries based on a permissible level of carbon emissions. The United States intended to apply carbon-based tariffs on steel and aluminum imports from China, but to exempt the American exports of steel and aluminum from the CBAM tariff regime. 

After talks faltered, and with a deadline to reinstate Section 232 tariffs (25% on EU steel, 10% on aluminum, taking effect January 1, 2024), the two sides extended the status quo: Tariff Rate Quotas (TRQs). Upon taking office, President Biden agreed to suspend the tariffs on EU steel and aluminum imports in exchange for the EU lifting the retaliatory tariffs on American goods. The TRQ system took effect, allowing a set amount of imported steel and aluminum from specific EU countries to enter the United States tariff-free until reaching the quota limit, at which point the tariffs resume for the remainder of the quota period. 

While the United States agreed to keep the TRQs in place through 2025, the EU only agreed to suspend tariffs on American goods until March 2025, as it sought to better position itself in the event former President Trump returns to office. Should President Biden win reelection, sources in Washington indicate that in a second term, his administration likely would resume talks with Europe on a carbon-based approach to tariffs and trade.In preparation for such an outcome, the Biden administration has begun to investigate greenhouse-gas (GHG) emissions from U.S.-produced steel and aluminum. Policymakers could use the data from the investigation, due in January 2025, to establish a carbon price benchmarked on domestic output.

Much of the discussion with European leaders during the past year has focused on carbon-based tariffs and efforts to unify their position against Chinese overcapacity. South of the border, the Biden administration and Mexican officials are working to reduce the surge in imported steel entering the United States and stopping Chinese steel from being transshipped through Mexican companies.

In February 2024, U.S. Trade Representative Katherine Tai, following discussions with her counterpart in Mexico, restated that under a May 2019 agreement reached by former President Trump, Washington has the right to reinstate the 25% tariff rate on steel imported from Mexico. Mexico, as expected, threatened to impose tariffs on American steel.

The two trading partners are working to create a list of steel imports the United States would like to track using a formal monitoring process authorized under the U.S.-Mexico-Canada Agreement. Such a system could lead to a restriction on imports, export controls, or possibly a TRQ system for those articles of steel identified as part of the surge-monitoring process.

In early March, a bipartisan group of senators introduced legislation authorizing the president to impose 25% tariffs on steel from Mexico for 12 months, and to create a TRQ program similar to that in place for the EU, Japan and the United Kingdom. Mexico will elect a new president in June 2024, as will U.S. voters later this year. Both scenarios elevate tensions over trade, and in particular, on the politically charged topic of steel tariffs. 

The politics of 2024 weigh heavy on the steel and aluminum markets as President Biden and former President Trump compete for votes in steel-producing states such as Pennsylvania, which has more than 750,000 union members. Other steel-producing states, such as Ohio, factor into control of the U.S. Senate, which ultimately will negotiate with the White House over trillions of dollars in tax cuts scheduled to expire on December 31, 2025.

On March 14, 2024, President Biden announced his opposition to the acquisition of U.S. Steel by Nippon. The White House statement said, “it is vital for [U.S. Steel] to remain an American steel company that is domestically owned and operated.” The politics of this acquisition are evident as the initial opposition of the steel union to the acquisition clearly played a role. 

Metal working companies consuming steel and aluminum as their primary inputs understand well how the decisions made in Washington impact supply and pricing. Regardless of the election outcome in November, U.S. government intervention in the steel and aluminum markets likely will continue.

Whether former President Trump increases tariff rates next year or President Biden, in a second term, resumes talks with the EU on a carbon-based approach, policymakers from Washington, Mexico City, Brussels and Beijing will keep the politics of steel top of mind in 2024.

Industry-Related Terms: Case, Center, Point
View Glossary of Metalforming Terms

Technologies: Management


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