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As talks continue to end U.S. steel tariffs brought in during the last administration, lobbying from U.S. steelmakers has created additional friction for policymakers in Europe and Washington hoping to make a deal.
Current tariffs on steel were introduced by President Trump in June 2018, imposing a 25 percent tariff on European steel and 10 percent tariff on aluminum on the grounds of national security. Unpopular across much of the steel industry they have nonetheless gained support from U.S. steel manufacturers who have seen a fillip as revneus have risen.
“There appears to be growing momentum behind some of the steel and aluminum tariffs being removed, but U.S. steel producers may be able to block of them from being lifted. U.S.-EU talks may only result in the U.S. lifting steel and aluminum tariffs on European producers, but not lifting the tariffs all together. The Biden administration is trying to shore up the US-Europe relationship and a lifting steel and aluminum tariffs on Europe would be another olive branch that could be offered,” Matthew Bey, Stratfor Senior Global Analyst at RANE told Breakbulk.
The EU has contested the tariffs since they were first advanced and following the failure of negotiations with the Trump administration, took the case to the World Trade Organization before imposing tit-for-tat tariffs on around US$7.8 billion of U.S. exports, including Bourbon whiskey, peanut butter and orange juice.
Felix Schoeller, General Manager of breakbulk line AAL Shipping agrees that momentum is now positive for a deal, telling Breakbulk that “From a political standpoint, President Biden is likely to reduce or remove the steel tariffs from the EU. During his presidential campaign, President Biden made it very clear that he will find the right balance between Trump’s all-out trade war and an indiscriminatory free trade agreement. Furthermore, President Biden has stressed more than once that his priority is to ensure the US keeps its position as the world’s most powerful economy – something can only be done with healthy trade agreements with other leading markets.”
Infrastructure budget
Despite pressure from steel producers the launch of President Bidens’s proposed US$6 trillion budget, the largest in U.S. history, is predicated on significant infrastructure spending, requiring significant steel major boost for breakbulk demand and a demand for steel
“US steel prices have surged more than three-fold since last year and this has become a significant threat to Biden’s ambitious infrastructure plans, which are so steel intensive,” Schoeller adds.” “Biden has so far only strengthened the existing ‘Buy American’ laws since his inauguration, which have already benefitted the US steel vertical as well as other major sectors like infrastructure.”
Philip K Bell, president of the US-based Steel Manufacturers Association, has welcomed the president’s plans, but has emphasised the importance of “strong domestic procurement preferences that help ensure that the steel used in our nation’s infrastructure is made by Americans for Americans and is melted and poured here and not abroad”.
Import growth
While the tariffs were initially brought in as part of the Trump’s policy to boost American manufacturing, the shortage in steel and ensuing rise in costs brought about by the outbreak of global pandemic last year has entrenched views and raised questions as to the source of cargoes.
“The COVID-19 economic crisis has been exacerbated by the high steel and aluminum tariffs for steel and aluminum intensive industries, slowing down their recoveries, while it has obviously helped steel producers’ recovery. There was going to be a lot of lobbying by U.S. industries to remove the steel and aluminum tariffs if President Trump lost the 2020 election regardless of the pandemic and the pandemic has only given the anti-tariff crowd more ammunition,” Bey explains.
Besides squeezing margins for U.S. manufacturers, who are importing intermediate products, the pandemic has also increased the urgency for Biden to deliver a solution for consumers, who have seen substantial prices hikes across the board, and break the current supply shortage.
“The drastic steel price hikes in both US and EU steel prices is mainly attributed to supply shortage. Thus, export opportunities to the US are open for steel from S. Korea (based on quota rather than tariffs) and Japan (which has existing long-term arrangements with US customers). With India’s rise in Covid cases, there should be higher than expected exports of steel to the EU. Steel exports from China should fall, as officials attempt to rein in rising commodity prices,” Schoeller notes.
One key factor in the initial implementation of the tariffs – the ongoing trade war between the U.S. and China – looks set to continue unabated however, regardless of the outcome of talks with the EU.
“Despite the likely pivot on steel tariffs with the EU, we expect that the US’s current high tariffs on Chinese imports will not change,” Schoeller states.
UK seeks de-escalation
Following its withdrawal from the EU in January, the UK is also reviewing its steel trade with the U.S. which falls under the same section 232 tariffs. Last week, the UK government launched a consultation on rebalancing measures in response to on steel and aluminium tariffs.
“We now have the power to shape these tariffs so they reflect UK interests, and are tailored to our economy. The UK will do whatever is necessary to protect our steel industry against illegal tariffs that could undermine British industry and damage our businesses. Ultimately, however, we want to de-escalate these disputes so we can move forward and work closely with the US on issues like WTO reform and tackling unfair trade practices by non-market economies,” Liz Truss, UK International Trade Secretary, said.
The UK consultation period will run for six weeks until early July, while trade representatives from the U.S. and EU hope “to find solutions before the end of the year”.
“Over the long-term breakbulk demand for steel cargoes will be driven by a lot of factors other than steel tariffs, including overall U.S. economic activity, decarbonization/light-weighting of various industries, the pace of the COVID-19 economic recovery globally, and the health of the U.S. manufacturing sector,” Bey concludes.
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