Lie back and think of Pennsylvania

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Welcome to Trade Secrets. I know, right? I was amazed as well. But yes, it’s the steel industry again, screwing up the global trading system for everyone else. This time it’s Joe Biden’s insistence that Pennsylvania-based US Steel being taken over by a company from the US’s close ally Japan is a threat to national security. I’m as keen on 1980s retro as the next Gen Xer, but I’d stick with reviving electropop and the mullet hair-do rather than resurrecting Tokyo-bashing as a prominent feature of US trade policy. Charted waters is on Brazil being scared of imports from China.

Getting dragged into an American drama

Questioning the sacred status of the US steel industry gets you disapproving looks in Washington, where an ostentatious attachment to things ferrous is how coastal elites signal they’re in touch with Real America. The Deerhunter has much to answer for.

But really, come on. This is way out of proportion. Iron and steel manufacture directly employs about 80,000 people in the US, 0.06 per cent of the total workforce and comfortably less than half the number of American pedicurists and manicurists. US Steel itself has just over 20,000 workers, half the number of employees at Penn State university. As I noted last week, US trade policy is disturbingly vibes-based. There’s a vague sense of the need to be seen fighting trade wars rather than actually creating jobs.

Japanese officials who complain on behalf of Nippon Steel will no doubt be explicitly told the same as the Europeans when the Biden administration tried to bounce the EU into joining its green steel club by threatening to reimpose the suspended Trump-era Section 232 national security tariffs on steel and aluminium. The electoral college is what it is, the swing states are what they are and the presidential election is this November. You’ve got to help us win Pennsylvania and Wisconsin or you’ll get Trump back.

You might call this pragmatic collaboration among allies. You might also call it clumsy attempts at coercion. Of course, Trump’s re-election could indeed be a catastrophe for the world trading system, and everyone has to bear their partners’ political sensitivities in mind. But the US isn’t handling these relationships well, and it doesn’t help that it has other invasive demands from its allies, such as Japan tightening its controls on sensitive exports to China, without seeming to give much back.

As I’ve noted before, the EU joining the green steel club, at least in the version targeted at carbon emissions, would have meant trashing its precious emissions trading system via giving American steel exporters a free pass on its carbon border charges. The EU’s resistance genuinely seemed to come as a shock to the Biden administration, which seems to have read far too much into some warm words about transatlantic co-operation from European Commission president Ursula von der Leyen. The US trade representative Katherine Tai didn’t help by making some strange remarks that adopting the green steel arrangement would be “very difficult for Brussels on an emotional level”.

This caused some amusement in Brussels, where few see the legendarily imperturbable Latvian trade commissioner Valdis Dombrovskis as habitually riding an emotional rollercoaster. It wasn’t an examination of its deepest feelings the EU was resisting so much as just a really bad idea.

Empty threats

Tai’s latest contribution to transatlantic relations is apparently to issue another threat related to developments in the current transatlantic armistice over steel. Under the informal deal the US has lifted the Section 232s until March 2025, replacing them with a complex system of import quotas, in return for Brussels suspending retaliatory duties.

The EU also has a case over the Section 232s outstanding against the US at the World Trade Organization. Brussels has paused progress in the case, but is leaning towards reviving it in coming weeks to remind Washington it’s not a pushover.

(A mea culpa from me here: last time I wrote about this I mistakenly said the US could appeal an adverse ruling in the case to the inquorate WTO Appellate Body, which would put the case into limbo. In fact, it’s being dealt with under a different arbitration system where the appellate stage isn’t involved.)

Whether restarting the case is a judicious move or not, Tai’s attempt at dissuading it, as reported by Bloomberg last week (I have heard similar since), is clumsy and most likely ineffectual: to warn the US will retaliate by holding up reform of dispute settlement in the WTO. Since the US has been dragging out that reform debate for more than three years to general irritation, that’s not much of a threat. It’s more likely to be counterproductive. The EU won’t hit US steel exports with tariffs before the election, but it’s keen to show it’s not a US satellite. Yes, it’s cognisant of political constraints, but the Biden administration has shown precious little sign of its alleged attachment to “friendshoring”, impending election or no.

(I asked the EU and the US about the possibility of reviving the case and Tai’s reported remarks. The commission said it was working towards lifting the Section 232 tariffs by the target date of March 2025; USTR, as often happens, did not respond.)

It’s one thing for the US to export its electoral problems by demanding its allies help micromanage a few tens of thousands of voters in the Middle Atlantic and Midwestern states. It’s another to alienate them with clodhopping threats and misguided lectures. Trading partners have voters and even principles too.

Charted waters

The US isn’t the only economy that has an issue with imports of cheap steel. Brazil, which is also using industrial policy in an attempt to finally achieve the world-beating manufacturing sector it’s always wanted, has experienced a big surge of iron and steel imports from China. The government is now wondering whether to raise tariffs to help its own steelmakers or side with its machinery manufacturers, who want cheaper inputs.

Trade links

Jennifer Harris, recently departed from the Biden White House, argues strongly that the flagship US Inflation Reduction Act is part of a new market-shaping approach to economic policy, not just a green transition programme in itself.

My FT colleagues explain how new EU laws on recycling plastic and on eliminating human rights and environmental abuses in supply chains have contributed to the feeling among low and middle-income countries that Brussels is biased against them.

A report on “global connectedness” from the logistics company DHL says that globalisation remains robust despite talk of it weakening.

A long piece in the American Affairs Journal explores how US export controls have created a new era for China’s semiconductor industry.

The FT’s Tej Parikh writes on how the rich economies are struggling to get growth going.

The World Bank’s soft-loan and grant arm is seeking its biggest round of contributions from shareholder countries.

Trade Secrets is edited by Jonathan Moules