The New U.S.–EU Steel and Aluminum Deal: A Path to Lower Carbon Emissions?

Author: Rose Savaria

On October 31st, the United States and the European Union announced the “Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade” as part of the U.S.-EU section 232 agreement. Under the agreement, the U.S. would lift the 25 percent tariff on European steel and the 10 percent tariff on European aluminum that were imposed under Section 232 of the Trade Expansion Act of 1962 (which authorizes the President to impose import restrictions when certain imports pose a threat to national security), and replace them with a so-called tariff-rate quota. In exchange, the EU would lift the retaliatory tariffs it imposed on certain American products such as bourbon and motorcycles. The arrangement, which should be negotiated by 2024, aims at inspiring the production and trade of metals made with fewer carbon emissions in places such as the U.S. and EU, and at blocking dirtier steel and aluminum production in countries like China. Ben Beach, the director of the Sierra Club’s Living Economy program, said that if finalized, it would be the first time a U.S. trade deal includes specific targets on carbon emissions.

This announcement could alleviate trade tensions between the U.S. and Europe. Indeed, not only will this deal allow President Biden to distance himself from the tariffs initially imposed under the Trump administration, but the new focus on carbon emissions differs from that of the former administration, which rejected all attempts to negotiate on the matter and withdrew the U.S. from the Paris Agreement on climate change. Still, negotiations with Europe will be far from easy considering past differences on how carbon emissions should be lowered, but the arrangement shows a strong willingness to work collaboratively.

According to U.S. Trade Representative Katherine C. Tai, this arrangement on steel and aluminum trade would create greater incentives for reducing carbon emissions in American and European modes of production. How will this work in practice? Any answer to this question should be considered preliminary as the U.S. and the EU have given themselves until 2024 to finalize the arrangement. What can be said is that the restrictions applied to the access of dirty steel should be coupled with domestic investments in the U.S. and EU as to further green the sector.

Moreover, this deal could create a new incentive for other countries to green their sectors in order to eventually join the arrangement. However, an important question remains: will this arrangement create true incentive in the U.S. and EU to lower their carbon emissions, or will the status quo remain and only others will be pressured to lower their emissions in order to gain access into their market?