Hello from Llanelli — a glorious former tin-producing town in Wales, UK, where your intrepid trade reporter is based for some of this week, before returning to Washington DC to resume normal service. It’s cold and dark, but nice to be by the sea.
Back in DC it’s been business as usual with a new deal reached to do away with Trump-era metals tariffs — the subject of our note today.
Charted waters looks at global shipping routes for liquefied natural gas.
Cuts to metals tariffs come with a climate twist
Another week passes, and another Trump-era trade irritant between the US and EU has been partially resolved. This time it’s the 2018 steel and aluminium tariffs the US slapped on European metals on contentious national security grounds. Europe retaliated with duties on a range of US goods, and despite halting an escalation in tariffs earlier this year, they had more scheduled for December if talks between US and EU officials didn’t resolve things.
The good news for US-based metal importers is that under the new deal announced this past weekend, the punitive US national security tariffs of 25 per cent on European steel and 15 per cent on aluminium have been lifted, although a tariff-rate quota has been put into place. Washington will allow up to 4.4m tonnes of steel annually to enter from the EU tariff-free, in line with levels before former president Donald Trump imposed his duties. Europeans initially resisted any sort of quota, although EU trade chief Valdis Dombrovskis has increasingly hinted of late that this would be the way forward. The two sides have also agreed to drop a potentially embarrassing fight at the WTO in Geneva, which would have seen the body forced to rule on the legitimacy of using trade mechanisms to handle an alleged national security issue. WTO officials can now breathe a sigh of relief.
This, of course, leaves metals trade between the US and Europe less free and more restricted than it was before Trump swept to power, but removing the tariffs was politically a tough sell for Biden. He would want to avoid losing the support of steel unions, who broadly supported the tariffs, in states he’ll want to try to win (such as Ohio, Indiana and Pennsylvania). Europe has clearly accepted that a tariff-free quota will have to do, although there has been some grumbling about this new era of “managed trade” from free-trade fans in Washington.
This brings us to the more interesting, although more vague, element of the deal — a commitment to undermine the competitiveness of high-pollution, carbon-intensive forms of producing steel and aluminium. When we’ve written about what a way forward for this metals dispute might look like, we said it was likely Washington and Brussels would need to come up with some joint commitment to tackle Chinese overcapacity in the steel industry, which has long been seen by both capitals as a threat to domestic industry. That seems to be what has happened, except it is cleverly wrapped in another issue — climate policy.
A report by the US-based Climate Leadership Council argues that the American steel industry actually emits a low level of greenhouse gasses compared with competitors, and that it would in theory benefit from a carbon border adjustment mechanism — that is, a penalty aimed at imports that are less green, designed to level the playing field if domestic industry incurs higher costs by being environmentally friendly. This is a politically useful idea for Team Biden — it can protect its steel industry with green policies, and Europe loves green policies. That said, Brussels and Washington haven’t always seen eye to eye on such policies. So far, the US has not been keen on Europe’s developing ideas for a carbon border adjustment mechanism, and while Europe has gone down the road of carbon pricing, Biden has instead set out a plan to subsidise green technologies and regulate emissions standards.
This is quite a fast-developing policy space, both in Europe and, more nascently, in the US, and there are various models and ideas for how to best make patchy global increases in regulatory burdens and different carbon pricing schemes all work with fair and relatively free trade. There isn’t much detail in this weekend’s deal that hints at how the US will approach this thorny issue, but they have given themselves until 2024 to reach some agreement with the EU on this. It seems that the aim would be to put up a united tariff (to be discussed) on carbon-intensive steel and aluminium imports, however that eventually gets measured and defined (also to be discussed).
So, as ever, there’s a lot of work left to be done. But the signs are that the US administration is heading tentatively down the policy path set out a few months ago by Todd Tucker of the Roosevelt Institute and Timothy Meyer of Vanderbilt University in this paper (which is worth rereading in light of this new deal). They argue that the US doesn’t need to go down the same path as the EU and introduce carbon pricing, but can still work with allies to reach sectoral agreements that agree on how to measure carbon intensity and impose tariffs on carbon-intensive industries. And they suggest that the steel industry would be a good place to start.
Charted waters
There’s been some good news for some of those countries that rely heavily on natural gas imports to meet their winter fuel needs, including the UK.
Prices in Britain for day-ahead contracts dropped almost 20 per cent to £1.39 a therm after trading higher than £2 a therm for most of October on the back of news from Gazprom on Friday that it had hit its target for domestic storage.
While the situation was more extreme in the UK than elsewhere in Europe, the chart shows that most of the trade in liquefied natural gas takes place in Asia. Claire Jones
Trade links
China has made an unexpected application to join a fledgling digital trade pact led by Singapore, New Zealand and Chile to boost co-operation on data transfer, privacy, ecommerce and artificial intelligence.
US sanctions against Chinese 5G contain several inconsistencies and are likely to lead to paradoxical outcomes, according to this piece by Hosuk Lee-Makiyama, director of the European Centre for International Political Economy, and Robin Baker, a research associate at the London School of Economics.
The National Taxpayers Union Foundation, a US research body, gives 11 reasons why Robert Lighthizer, Trump’s trade representative, is wrong about trade and tariffs in his call to raise import taxes.
International trade is flourishing despite the pandemic, Ngozi Okonjo-Iweala, the head of the World Trade Organization, has written in The Economist. But she adds that global rules are needed to ensure predictability and growth. (The Economist, $, subscription required)
Source: Economy - ft.com
