Bloomberg reports this week that the European Union would gladly lift its retaliatory tariffs on $3.4 billion in American exports if President Biden removed the U.S. “national security” tariffs on European steel and aluminum, which were imposed in 2018 and started the trans‐Atlantic trade spat. If, on the other hand, the U.S. tariffs remain in place, the EU fully intends to amplify its retaliation this summer:
In 2018, the EU reserved the right to target more U.S. products with further duties no later than mid‐2021. Second‐stage retaliation would involve levies ranging from 10% to 50% on an extra 3.6 billion euros of American goods imported into the EU.
[W]ithout a negotiated settlement, the second‐stage European tariffs would automatically take effect no later than June 1. That gives the Biden administration an extra incentive to call a truce and remove the original U.S. duties, which are based on a little‐used provision — section 232 — of a Cold War‐era American trade law.
Few people, outside of the steel industry and a handful of former Trump administration officials and devoted (and emotionally invested) economic nationalists, think that President Trump’s Section 232 tariffs have been an economic or geopolitical success. Indeed, as I explain in a new paper out this week, the steel tariffs are a case study in the perils of “security nationalism.” In particular, they–
- Were implemented despite the fact that (1) the steel industry already benefited from ample U.S. subsidies and protectionism and was relatively healthy (with steady output, solid financials and a still‐dominant 70 percent domestic market share) when the tariffs were imposed; (2) steel imports primarily came from reliable U.S. allies, such as Canada, Japan and EU countries; and (3) the Defense Department itself said that global tariffs were unnecessary, as “military requirements for steel and aluminum each only represent about three percent of U.S. production”;
- Have imposed significant economic costs for U.S. manufacturers (including some steelmakers who import semi‐finished steel) due to higher input prices, foreign retaliation, new compliance costs (lawyers), and investment uncertainty — thus weakening the defense industrial base;
- Have had a minimal impact on U.S. steelworker jobs and the industry’s overall health, while failing to address global steel overcapacity—the alleged driver of the steel industry’s weakened position—and actually harming many domestic steel companies; and
- Antagonized allies (especially in the EU), undermined U.S. credibility at the World Trade Organization and elsewhere, and eroded the rule of law in the United States via the clear abuse of constitutional trade powers delegated to the executive branch by Congress.
That the Trump administration implemented and maintained these tariffs is unsurprising, given politics and President Tariff Man’s affection for the policy measures (not to mention the numerous administration officials with deep connections to the steel industry).
President Biden, however, has no such limitations (though he of course has his own politics to deal with). He also has criticized Trump’s tariffs and promised to improve trans‐Atlantic relations — relations that, as Bloomberg notes, were undermined by the “national security” tariffs and will further deteriorate if the levies aren’t lifted soon. Given these realities (plus the numerous EU steelmakers that have invested in the United States), removing the tariffs on European steel is an early — and remarkably easy — test for President Biden and his team.
Will they pass?