The EU–US steel tariff dispute

Michaels, Simon, Ulysses

Background

Section 232 Tariffs
The EU Safeguard measure

EU and US want to settle trade war.

Now I am going to introduce the background of this trade war.

In 2016, Donald Trump became the president of America. At that time, he promised the citizens the “America First” appeal. In 2017, the value of import of steel in America hit the highest record, with the value of 34.6 million, which is a 15% increase from 2016. This high level of import makes America the biggest steel importer in the world. However, higher import means worse for the domestic producers and national GDP, which cannot fulfil the promise Trump gave to the public when he was at election. As a result, he must use policies to reduce the value of import. Consequently, he used the Section 232 Act to reduce the amount of import.

Section 232 of the Trade Expansion Act of 1962 authorizes the President of the United States, through tariffs or other means, to adjust the imports of goods or materials from other countries if it deems the quantity or circumstances surrounding those imports to threaten national security.

In Mar. 8, 2018, Trump announced a 25% tariff on steel imports and a 10 percent tariff on aluminum to sanction the import of steel and aluminum according to Section 232. This policy officially took effect at Jun. 1st. At the mean time, the European Commission imposed definitive safeguard measures, in the form of a quota of 105% of the average of import from 2015 to 2017 and a tariff of 25% applies for imports above the quota. This system of tariff and quota is called the safeguard of EU. In the following years, the value of this safeguard has been done a few minor changes. These two policies, though there were many adjustments, are the major policies the two countries used for the trade war.

Now, EU is looking to “push” the United States to agree on an easing of trade tariffs that emerged during the Donald Trump presidency. However, so far, there is “no clear sign” that the U.S. will sign up to what the EU wants. American President Biden suggested that It’s also clear that any common policies have to fit with the political climate at US, and especially when it comes to trade and technology.

Impacts of the trade war

Section 232 tariffs

On 23 March 2018, US tariffs of 25% on steel imports and 10% on aluminium imports took effect.

Reasons

Domestic steel & aluminium production is essential for national security applications.
Imports in such quantities as are presently found adversely impact the economic welfare of the U. S. steel & aluminium industry.

Too heavy steel and aluminium imports impair US national security. I am going to illustrate this just about steel. The case for aluminium is similar.

National security includes projected national defense requirements for the U.S. Department of Defense. National security also encompasses U.S. critical infrastructure sectors including transportation systems, the electric power grid, water systems, and energy generation systems. Domestic steel production is essential for national security applications. Statutory provisions illustrate that Congress believes domestic production capability is essential for defense requirements and critical infrastructure needs, and ultimately to the national security of the United States.

Besides, excessive steel imports have adversely impacted the steel industry. Numerous U.S. steel mill closures, a substantial decline in employment, and lost domestic sales and market share illustrate the decline of the U.S. steel industry. As steel imports have increased, U.S. steel production capacity has been stagnant and production has decreased. The declining steel capacity utilization rate is not economically sustainable. Utilization rates of 80 percent or greater are necessary to sustain adequate profitability and continued capital investment, research and development, and workforce enhancement in the steel sector.

Largely, this situation is caused by the rapid increase in the production capacity of China. China subsidizes its steel and aluminum industry, which leads to an increase of world supply for those goods. This is not closely related to our topic today, and I will not talk further about it.

Effects

What if the Section 232 Tariffs are abolished?

Reverting back to the situation before Section 232.
EU may (but probably not) soon withdraw the Safeguard measure.
The advantage would clearly be on the EU side.

So, what will happen if the EU and the US reach an agreement on November 1? Actually, that depends on what the EU and the US agree on. If the US government makes changes to Section 232 as a result of the negotiations, then according to a clause in a regulation of EU, there would have to be an immediate review of Safeguard by the Europeans.

So, what will happen if the Section 232 tariffs are abolished?

If the United States unilaterally abolishes its Section 232 tariffs, this would revert the situation back to when there were no such tariffs, which means this would open the door for EU steel imports into the United States. But U.S. steel exports would still fall under the quota rules and tariffs of the EU Safeguard measure, and will until the European Commission decides that a Safeguard review has found that EU steelmakers remain safe – which is more likely not to be the case. And the import quota of U.S. steel mills to Europe is not that large now. The advantage would clearly be on the EU side.

A quota system

Reasons

As US limited the import, EU has to respond to this change, decreasing their import as well, or their net export will be lowered, causing a decrease in domestic AD.

Effects of quota

Increase in quality supplied, decrease in quantity demanded and decrease in imports.
Domestic consumers are worse off.
Domestic producers are better off.
Domestic employment increases.
Domestic income distribution worsens.
Increased inefficiency in production.

If canceled

US is highly possible to keep Section 232, limiting import. This way, EU worse off in net export.

Conclusions

No real solutions have yet been proposed and it will be very difficult to find them.

The EU–US steel tariff dispute

Background

Impacts of the trade war

Section 232 tariffs

Reasons

Effects

What if the Section 232 Tariffs are abolished?

A quota system

Reasons

Effects of quota

If canceled

Conclusions

Thank you!