Aurelia Butler

The EU has rejected a proposed US solution to end tariffs on steel and aluminium, heightening fears of a renewed transatlantic trade dispute.The two sides paused a tariff war over measures imposed by then US president Donald Trump in 2021 but must find a binding deal on a new “green steel” club by October.But the EU believes the US’s proposed solution is likely to breach World Trade Organization rules because it discriminates in favour of domestic producers, according to officials with knowledge of the situation. Valdis Dombrovskis, the EU trade chief, is travelling to Washington next week as time runs short to secure a breakthrough If the two sides cannot reach an agreement, the US tariffs will kick back in automatically in October — and so will EU retaliatory measures. The tariffs are 25 per cent on steel and 10 per cent on aluminium from Europe while EU measures target products such as bourbon whiskey and Harley-Davidson motorcycles. When they paused the dispute the US and EU agreed to form a sustainable steel club that would prioritise low carbon production — a measure also aimed at lowering both sides’ reliance on Chinese imports. The US proposal would allow club members to set emissions standards, and levy tariffs on those who do not meet them, according to media reports. To join, governments would also have to commit to not overproduce steel and aluminium and to limit the role of state-owned enterprises.Brussels instead thinks its new carbon border adjustment mechanism (CBAM), which will levy tariffs on imports according to their carbon intensity, is the right answer.It has suggested CBAM combined with traditional trade defence tools — to address overproduction in the sector — as the basis for the so-called Global Arrangement on Sustainable Steel and Aluminium (GSA). Unlike the EU, the US has no national carbon pricing system and the Biden administration is wary of levying charges on heavy industry in states the president needs to retain in the 2024 election such as Pennsylvania, Michigan and Illinois. It is also reluctant to drop the tariffs, which Trump imposed on national security grounds, and be accused of risking blue-collar jobs, especially because of cheap Chinese imports.The EU has an emissions trading system that forces companies to buy permits to pollute, with the price of a tonne of carbon hitting €90 in recent months. Its CBAM would force importers to pay the same price for seven sectors, including steel and aluminium, if the country of origin has a lower, or no, carbon price.The truce put in place a temporary system of tariff-rate quotas, which allow exports of metals between the EU and the US with lower levies up to a certain volume.In return, the EU suspended retaliatory tariffs and the two sides agreed to set up the global arrangement by October this year when the deal expires. The hope is to sign a deal at a possible EU-US summit around that time.Dombrovskis will also push for better treatment for the EU under the US’s support scheme for electric vehicles. Washington’s Inflation Reduction Act restricts subsidies to EVs and batteries substantially made in the US, Canada and Mexico. But it has offered to include EU manufacturers sourcing or processing the five most common minerals for batteries. However, some EU governments are pushing to expand the regime to all 50 metals listed in the IRA. “We don’t know how battery technology will evolve,” said one EU official.European Commission spokesperson Miriam Garcia Ferrer confirmed Dombrovskis’s travel plans and said contacts with the US were “continuous”.She said the two sides were “fully committed to achieving an ambitious outcome” for the GSA by October.The EU wanted a “permanent solution” and “to re-establish normal and undistorted transatlantic trade in the sector”.“All this would be done in compliance with our international obligations, such as WTO rules, as well as our domestic climate policies,” she added.The US administration did not immediately respond to a request for comment. More

BRUSSELS (Reuters) – Euro zone governments should tighten fiscal policy next year more than currently planned to help the European Central Bank fight inflation and prevent interest rates rising too high, the European Fiscal Board (EFB) said in a report on Wednesday.The EFB is an independent advisory body set up to assess fiscal policy in the 20 countries that share the euro currency and advise the executive European Commission.The Commission expects that in 2024, euro zone governments will reduce fiscal support to the economy by 0.8% of GDP, but the EFB said the overall euro zone fiscal stance would remain supportive even with that tightening.”Because of the favourable macroeconomic outlook, the EFB considers a restrictive fiscal impulse in the euro area appropriate in 2024,” it said in its annual report.”Moreover, falling inflation and rising interest rates will in due time provide less relief to public finances. Barring new negative developments, an improvement in the structural primary balance beyond the 0.8% of GDP projected by the Commission would appear to be appropriate,” the report said.The EFB said the euro zone economy would operate close to its potential in 2024 and the labour market would remain surprisingly tight. “Therefore, 2024 could very well ex post fall into the category of ‘economic good times’,” the EFB said.The European Central Bank has been rapidly raising interest rates since the middle of 2022 to stem high inflation and is keen for fiscal policy not to work against it. To that end, euro zone governments are to phase out their energy price subsidies this year, withdrawing some 1.25% of GDP in fiscal support.”A sizeable restrictive fiscal impulse would help the ECB in the pursuit of its inflation target. A fiscal policy stance that is too expansionary would imply higher interest rates with a potential knock-on effect on output,” the EFB said. More

Joe Biden will make a new push to sell his economic agenda to Americans later today and win over sceptical voters as the latest economic data highlighted the economy’s resilience.The president’s speech — at the Old Post Office in Chicago’s downtown area — reflects growing confidence inside the White House that Biden can gain more political credit for his sweeping economic legislation that has included pumping billions of dollars into infrastructure, clean energy and chips manufacturing.Polls conducted since late 2021 have consistently shown that Americans disapprove of Biden’s handling of the economy and Republicans have relentlessly criticised the president’s economic record, particularly on inflation.Periodic attempts by the White House to tout the economic recovery proved a hard sell with voters as inflation rose to 40-year highs. But the White House will take heart from the latest economic data, released yesterday, which showed the US economy remained resilient. Consumer confidence reached its highest level since 2022 while purchases of new homes rose at their fastest rate in a year and durable goods orders rose by more than estimates. The positive data helped stock markets close higher after a week of selling. A leaked memo on Monday from the president’s top political advisers suggested “turning the page on failed trickle-down policies” would be a key narrative in Biden’s re-election campaign.Lael Brainard, the director of the White House National Economic Council, yesterday said Biden’s speech would focus on “growing our middle class”. Read more: Martin Wolf’s column this week focuses on the US’s leading role in the global economy. He says having made the postwar global order, America is now suffering from buyer’s remorse. Here’s what else I’m watching today:ECB forum: The heads of the Bank of England, Bank of Japan, European Central Bank and US Federal Reserve all speak on a panel at the ECB’s annual central bank gathering in Portugal.US banks: The Federal Reserve will publish the results of its annual stress test for the largest banks in the country.Results: Cheerios cereal maker General Mills releases fourth-quarter earnings and chipmaker Micron publishes third-quarter results. Economic data: The US trade deficit is expected to have narrowed in May, having hit its widest level in six months in April.Five more top stories1. Exclusive: Ukraine’s defence minister hit back against doubters over the progress of his country’s summer counteroffensive, insisting to the Financial Times that recent modest gains against Russia’s military were merely a “preview” of a much bigger push to come. Read the full interview with Oleksiy Reznikov. Wagner fallout: Following the group’s shortlived revolt, Russian propagandists are performing complex manoeuvres to praise Putin and attack Wagner founder Yevgeny Prigozhin.2. The US commerce department is preparing to update sweeping export controls introduced last October to make it harder for US semiconductor companies such as Nvidia and Advanced Micro Devices to sell advanced chips to China. Read more on the proposals.Read more on US-China relations: Nikki Haley yesterday accused former president Donald Trump of showing “moral weakness” in his dealings with Xi Jinping. 3. Regional and midsized US banks have stepped up efforts to sell off their loan portfolios, looking to raise cash and cut their capital requirements. Private credit investors including Ares and KKR said they were being offered more portfolios in areas such as car and consumer loans, commercial real estate and speciality finance. Read more.4. Rafael Correa, the convicted former leftist president of Ecuador, is attempting to regain power through an ally in early elections to be held in August. Correa’s chosen candidate, Luisa González, has become the early frontrunner thanks to his endorsement. Read more on Ecuador’s upcoming election.5. The Biden administration has criticised a decision by Israel’s far-right government to advance plans for 5,700 new homes in Jewish settlements in the occupied West Bank, branding it “an obstacle to peace”. The Israeli decision to press on with the new housing units comes at a time of inflamed tensions in the West Bank. Read more on Benjamin Netanyahu’s plan to accelerate expansion of the settlements. The Big Read

Border between Gibraltar and Spain © Claudia Wiens/FT

A power struggle in Spain threatens to dash Gibraltar’s hopes for closer ties with the EU. The UK territory, which voted overwhelmingly against Brexit, is racked by fears of a hard border with its neighbour that would end the ease of movement to which workers have grown accustomed.We’re also reading and listening to . . . Artificial intelligence: Even as regulators crack down on confusing website processes, companies are using AI to make more sophisticated sales methods that are potentially exploitative, writes Brooke Masters.Wagner in Africa: The Wagner Group was the main vehicle of Moscow’s power projection on the continent for years, but its future is now in question after its aborted mutiny in Russia.Janan Ganesh: The moral case for democracy is too hard to make. It is the utilitarian case — the battle for minds, not hearts — that western leaders must prosecute.Chart of the day

A sharp drop in the value of the yen is fuelling speculation among investors that the Japanese authorities are preparing a “summer sequel” to the massive market intervention to support the currency last October, the first in nearly a quarter of a century. The yen has fallen sharply this month as investors bet the Bank of Japan has ruled out raising interest rates. Take a break from the newsTreehouses now can be luxury garden amenities, not just impromptu shacks. Companies have emerged around the world who specialise in bespoke designs and installations intended as much to delight over-18s as their toddler tykes. Mark Ellwood shares some of the most striking examples.

Additional contributions by Grace Ramos and Benjamin Wilhelm More