The Global Politics of Steel

By Omar S. Nashashibi, partner, The Franklin Partnership, LLP

As has been the case for much of the past five decades, we find steel imports at the center of trade-policy discussions in Washington, D.C. This being an election year, it is no surprise that steel and unions are top of mind for politicians. However, what makes this next saga in the trade wars different: The European Union (EU) has joined the fray, and in some ways the fight.

Beginning in January 2026, the EU will implement the Carbon Border Adjustment Mechanism (CBAM), requiring importers of iron or steel, aluminum, cement, fertilizer, hydrogen, cement, and electricity into the 27-nation bloc to pay a tariff based on the carbon emitted during production of those goods. By 2030, that list of affected imports likely will expand. In this transitional phase, companies that ship steel into the EU must file quarterly reports on their direct and indirect emissions.

Importers of the covered steel, aluminum and other goods have begun to report their Scope 1 (direct emission output); Scope 2 (emissions from the energy sources used); and Scope 3 (indirect emissions from the supply base). The EU’s carbo-tariff structure is currently in place, and officials in Washington have taken notice.

Late in 2023, the Biden administration and the EU failed to reach an agreement on a joint Global Arrangement on Sustainable Steel and Aluminum (GASSA), which, essentially, would have allowed tariff-free trade of steel and aluminum across the Atlantic. The proposal, pushed by the White House, sought to impose a carbon-based tariff on imported steel from non-GASSA countries based on a permissible level of carbon emissions. The United States intended to apply carbon-based tariffs on steel and aluminum imports from China, but to exempt the American exports of steel and aluminum from the CBAM tariff regime. 

After talks faltered, and with a deadline to reinstate Section 232 tariffs (25% on EU steel, 10% on aluminum, taking effect January 1, 2024), the two sides extended the status quo: Tariff Rate Quotas (TRQs). Upon taking office, President Biden agreed to suspend the tariffs on EU steel and aluminum imports in exchange for the EU lifting the retaliatory tariffs on American goods. The TRQ system took effect, allowing a set amount of imported steel and aluminum from specific EU countries to enter the United States tariff-free until reaching the quota limit, at which point the tariffs resume for the remainder of the quota period. 

While the United States agreed to keep the TRQs in place through 2025, the EU only agreed to suspend tariffs on American goods until March 2025, as it sought to better position itself in the event former President Trump returns to office. Should President Biden win reelection, sources in Washington indicate that in a second term, his administration likely would resume talks with Europe on a carbon-based approach to tariffs and trade.In preparation for such an outcome, the Biden administration has begun to investigate greenhouse-gas (GHG) emissions from U.S.-produced steel and aluminum. Policymakers could use the data from the investigation, due in January 2025, to establish a carbon price benchmarked on domestic output.