European Steel Plan Shows Biden’s Bid to Merge Climate and Trade Policy
A potential agreement on steel trade provides the clearest look yet at how the Biden administration plans to implement a trade policy that is both protectionist and progressive,
WASHINGTON — President Biden has promised to use trade policy as a tool to mitigate climate change. This weekend, the administration provided its first look at how it plans to mesh those policy goals, saying the United States and the European Union would try to curb carbon emissions as part of a trade deal covering steel and aluminum.
The arrangement, which American and European leaders aim to introduce by 2024, would use tariffs or other tools to encourage the production and trade of metals made with fewer carbon emissions in places including the United States and European Union, and block dirtier steel and aluminum produced in countries including China.
If finalized, it would be the first time a U.S. trade agreement includes specific targets on carbon emissions, said Ben Beachy, the director of the Sierra Club’s Living Economy program.
“No U.S. trade deal to date has even mentioned climate change, much less included binding climate standards,” said Mr. Beachy.
The announcement was short on details, and negotiations with European leaders are likely to face multiple roadblocks. But it provided an outline for how the Biden administration hopes to knit together its concerns about trade and climate and work with allies to take on a recalcitrant China, at a time when progress on multicountry trade negotiations at the World Trade Organization has stalled.
“The U.S. leads the world in our clean steel technology,” Gina Raimondo, the secretary of commerce, said in an interview on Monday. She said the United States would work with allies “to preference cleaner steel, which will create an incentive to make more investments in technology,” resulting in fewer carbon emissions and more jobs.
In the same interview, Katherine Tai, the United States Trade Representative, said the potential agreement would restrict market access for countries that don’t meet certain carbon standards, or that engage in nonmarket practices and contribute to global overcapacity in the steel sector — accusations that are often levied at China.
The effort would seek to build “a global arrangement that promotes not just fair trade in steel but also pro-climate and responsible trade in steel,” Ms. Tai said.
Kevin Dempsey, the president of the American Iron and Steel Institute, said at an industry forum in Washington on Tuesday that the arrangement would be “positive for the U.S. industry,” which has the lowest carbon intensity per ton of steel of the major steel-producing countries.
China accounts for nearly 60 percent of global steel production. Its use of a common steel-production method causes more than twice as much climate pollution as does the same technology in the United States, according to estimates by Global Efficiency Intelligence.
In its announcement on Saturday, the Biden administration also said it had reached a deal to ease the tariffs that former President Donald J. Trump had imposed on European metals while the governments work toward the carbon accord.
The United States would replace the 25 percent tariff on European steel and a 10 percent tariff on European aluminum with a so-called tariff-rate quota. In return, the European Union would drop the retaliatory tariffs it imposed on other American products, like bourbon and motorcycles.
Under the new terms, 3.3 million metric tons of European steel would be allowed to enter the United States duty-free each year, with any steel above that volume subject to a 25 percent tariff.
European producers would be allowed to ship 18,000 metric tons of unwrought aluminum, which often comes in the form of ingots, and 366,000 metric tons of wrought or semifinished aluminum into the United States each year, while volumes above that would be charged a 10 percent tariff, the commerce department said.
To qualify for zero tariffs, the steel must be entirely made in the European Union — a provision designed to keep cheaper steel from countries including China and Russia from finding a backdoor into the United States via Europe.
Supporters of free trade have criticized the Biden administration for relying on the same protectionist trade measures used by the Trump administration, which deployed both tariffs and quotas to protect domestic metal makers.
Jake Colvin, the president of the National Foreign Trade Council, said the announcement would ratchet down trade tensions between the United States and Europe. But he called the trade barriers “an unwelcome form of managed trade” that would add costs and undermine American competitiveness.
Ms. Tai said the administration had made a deliberate choice not to heed calls “for the president to just undo everything that the Trump administration had done on trade.”
Mr. Biden’s plan, she said, “is that we formulate a worker-centered trade policy. And that means not actually going back to the way things were in 2015 and 2016, challenging us to do trade in a different way from how we’ve done it earlier, but also, critically, to challenge us to do trade in a way different from how the Trump administration did.”
The focus on carbon emissions differs from that of the Trump administration, which rejected any attempts to negotiate on carbon mitigation and withdrew the United States from the Paris Agreement on climate change.
But negotiations with Europe will face challenges, among them developing a common methodology for measuring how much carbon is emitted as certain products are made. Still, the announcement suggests that the United States and Europe might be ready to work toward a collaborative approach on lowering carbon emissions, despite past differences on how the problem should be addressed.
European leaders have long advocated an explicit price on the carbon dioxide that companies emit while making their products. In July, the European Union proposed a carbon border adjustment mechanism that would require companies to pay for carbon emissions produced outside Europe, to discourage manufacturers from evading Europe’s restrictions on pollution by moving abroad.
An explicit tax on carbon has met with more resistance in the United States, where some politicians want to update regulatory requirements or put the onus on companies to invest in cleaner production technology.
Todd Tucker, the director of governance studies at the Roosevelt Institute, said the latest announcement suggested that the European Union may be “a little bit more flexible” on how the United States and other partners would go about lowering emissions. Mr. Biden’s reconciliation bill, for example, contains a proposal for a “green bank” that could provide financing for firms to transition to cleaner technologies, he said.
“If the U.S. ends up achieving decarbonization through more of an investments and industrial-policy approach, it seems like they’re OK with that,” Mr. Tucker said.
Though the earliest negotiations over carbon emissions in the steel sector involve the European Union, the Biden administration says it wants to quickly extend the partnership to other countries.
In twin announcements on Sunday, the Department of Commerce said it had begun close consultations with Japan and the United Kingdom “on bilateral and multilateral issues related to steel and aluminum,” with a focus on “the need for like-minded countries to take collective action.”
Both Japan and the United Kingdom still face a 25 percent tariff on steel exports to the United States imposed by Mr. Trump.
The talks suggest a template for how the Biden administration will try to engage allies to counter China’s growing economic heft and make progress on goals like climate and workers rights.
The administration has rejected Mr. Trump’s “America First” approach to trade, saying the United States needs to work with like-minded countries. But they have also acknowledged that the inefficiency of negotiations at the World Trade Organization, and distanced themselves from broader, multicountry trade deals, like the Trans-Pacific Partnership.
The announcements suggest that the Biden administration may not see comprehensive trade deals as the most effective way to accomplish many of its goals, but rather, industry-specific agreements among a limited number of democratic, free-market countries. That approach is similar to the cooperation the United States announced with the European Union for the civil aircraft industry in June.
Ms. Raimondo said the agreement to ease the tariffs on the European Union was a “very significant achievement” that would help to alleviate supply chain problems and lower prices for companies that use steel and aluminum to make other products.
“It’s all kind of a table setter to a global arrangement, whereby we work with our allies all over the world over the next couple of years,” she said.