There is a famous line that if it moves, tax it. If it keeps moving, regulate it. If it doesn’t move, subsidize it. While this may not be a true reflection of how governments view the economy, it is correct that subsidies and tariffs are a never-ending source of conflict in international trade relations.
While the world is focusing on COVID-19 vaccine nationalism and the negative effects of trade barriers, there is a dispute over steel and aluminium tariffs and quotas which is being overlooked. While it may appear technical at first sight, the Section 232 tariffs and quotas on imports have – and will continue to have – a huge impact on EU-US trade relations.
Full metal jacket
Section 232 refers to the part of the US Trade Expansion Act of 1962 which allows the president to use authority delegated by Congress to impose tariffs or quotas when it is determined that imports “threaten to impair the national security.” Far from being a bureaucratic detail, this was invoked by President Trump in 2018 when he introduced 25% tariffs on steel and 10% tariffs on aluminium imports into the US.
The effects of this decision have been as dramatic as they have been widespread. The duties increased prices of key inputs for US manufacturers, led to retaliatory measures from the EU and other trading partners, while they also created new strains and tensions with allies and foes alike.
As a result, other industries have been caught up as collateral damage in the steel and aluminium dispute, with a whole range of goods from agricultural products to spirits and luxury items affected by tariffs. It is often the case that the ones most likely to suffer in any conflict are the innocent, yet all sides need to work together in order to avert this.
This would be a sufficiently bitter pill in itself but the EU’s retaliatory tariffs are set to double on the 1st of June this year.
Time for a reset
With the coronavirus pandemic maintaining its global grip and economies suffering, now is the time to strengthen the transatlantic trade relationship and reestablish it as the cornerstone of the multilateral trading system. By diffusing the steel and aluminium trade spat, the EU and US can be a good example to the rest of the world in difficult and uncertain times.
Dismantling tariffs would provide a big boost to many sectors in both the EU and the US. In the Airbus-Boeing disputes, it was primarily the unrelated sectors that had to suffer the consequences, with considerable export drops on both sides of the Altantic.
Some European businesses in affected sectors such as wine and spirits or confectionary suffered up to 40% export losses as a result. From the US perspective, the higher price of imported steel and aluminium due to the introduction of tariffs hit national firms hard. Some automotive manufacturers reported that higher tariffs cost them over USD 1 billion. At the same time, US steel and aluminium companies have witnessed falling share prices, lower levels of investment and increased lay-offs of employees.
Now is not the time for provocation. The EU and US should reach a solution that is beneficial for all. While the current dispute may appear vast, complex and impenetrable, a suspension of tariffs and quotas – as we saw in the Boeing-Airbus dispute – would be the best approach.
Every job may look easy when you are not the one doing it, but when it comes to dismantling steel and aluminium tariffs and quotas it is in the interests of everyone on both sides of the Atlantic to try. The clock is ticking.