This weekend, the White House announced an arrangement with the European Union (EU) to suspend longstanding tensions over U.S. “national security” tariffs on steel and aluminum imports implemented in 2018. Many news outlets have described the agreement as a significant change in course for U.S. trade policy – a “roll back” of President Trump’s tariffs and shift away from a policy of bellicose bilateralism towards one more supportive of trade and U.S. allies. Look a little more closely, however, and we see that the deal merely replaces the tariffs with a different, more opaque and distortionary system of restrictions. Even worse, it signals a full Biden administration embrace of Trump-era managed trade and, more troublingly, the continuation of the former president’s radical shift to a power-based trading system that imperils both global trade and the multilateral system under which it has flourished since the 1940s.

As you’ll recall, President Trump in March 2018 used Section 232 of the Trade Expansion Act of 1962 to impose tariffs of 25 percent on steel and 10 percent on aluminum from almost every country in the world because these goods supposedly imperiled U.S. “national security.” Even though the vast majority of these metals came from close U.S. allies (not potential adversaries like Russia or China), Section 232’s ambiguous “national security” standard allowed almost anything from anywhere to be considered a threat. Over the last few years, the Trump administration eliminated tariffs on imports from Australia, Canada and Mexico, while Argentina, Brazil and South Korea agreed to strict quotas.

The tariffs on European metals, however, remained in force, thus pushing the EU to impose retaliatory tariffs against U.S. imports and to announce a doubling of those tariffs as of December 1, 2021. To avoid further pain, the Biden administration entered into negotiations with the EU to resolve the dispute – even though President Biden could have simply eliminated the U.S. tariffs and the entire bilateral dispute with the stroke of pen. (Section 232 provides the president with essentially unfettered discretion to terminate actions taken against imports alleged to imperil national security.)

In so doing, however, Biden would have run afoul of politically important U.S. steelmakers and unions (and their congressional backers). So his team instead secured the agreement announced this weekend, which – per the framework announced by the Department of Commerce – consists of the following elements:

• The United States will impose a tariff-rate quota (TRQ), effective January 1, 2022, allowing for a fixed volume of EU imports to enter the United States duty-free, with any additional quantities facing tariffs at the Trump-negotiated levels.
• There will be separate quotas for 54 different steel product categories, 16 different aluminum product categories, on each of the 27 EU member states, based on its historical exports of those goods to the United States. The exact quantities have not yet been released, but they appear to be quite low: for example, the framework sets the total steel quota at 3.3 million tonnes – about two-thirds of the volume that the United States imported in 2018 (4.8 million tonnes, according to The New York Times). Thus, “[m]etal unions in the United States praised the deal, which they said would limit European exports to historically low levels.”
• The deal will also maintain the current “exclusion process,” under which U.S. metals consumers can petition for tariff relief. According to the Wall Street Journal, the deal will keep current exclusions for two more years – thus expanding the total tariff-free volumes entering the U.S. by another million tonnes or so. As we’ve detailed, however, this process has been arbitrary, erratic, and opaque – a view confirmed by the U.S. Department of Commerce’s Office of the Inspector General, which reported in October 2019 that “the Section 232 exclusion request review process is neither transparent nor objective” and cited concerns of “the appearance of improper influence in decision‐​making for tariff exclusion requests.” So U.S. importers benefiting from exclusions can breathe an immediate sigh of relief, but they remain stuck in this uncertain, Kafka-esque process over the longer term.
• Quotas will be administered quarterly, with volumes filled on a first-come-first-served basis and up to 4 percent of unused volumes during any one quarter carried over into the next quarter. TRQs administered in this fashion are sure to introduce distortions, for example, large U.S. importers stockpiling early in a quarter and paying higher prices to do so. (See, e.g., this USDA paper on the issue.)
• The TRQ will be adjusted each year, but every 6 percent change in U.S. steel demand will only be met by a 3 percent change in the TRQ. Thus, if U.S. steel demand increases next year – as is expected with various stimulus measures on tap – quota levels will not increase to meet it. (For example, if demand for steel increased by 18 percent in 2022, the total quota would only increase by 9 percent.)
• To be eligible for the TRQ, steel imports must be “melted and poured” in the EU – an onerous new “rule of origin” standard and major departure from the current one, under which goods are “originating” from European and other countries where they have been “substantially transformed” there. Not only will this standard further limit metals’ eligibility (for example, stainless steel made from semi-finished slabs imported into the EU won’t qualify) for duty-free treatment, but will also impose new reporting and compliance burdens on U.S. importers who will have to provide “relevant documentation substantiating compliance” or else face “remedies and/​or penalties as provided for under U.S. law.”

Given the new system’s costs and complexities, there’s little support for the Biden administration claims that the deal will surely “lower prices for American consumers and families by providing relief for American manufacturers who rely on readily accessible, affordable steel and aluminum to make their products.” (Recent research shows, for example, that the TRQ on residential washing machines enacted in 2018 significantly increased consumer prices.) Instead, the only clear beneficiaries will be the European exporters lucky enough to win duty-free quota allocations (“rents”) and the lawyers hired to navigate this new managed trade quagmire. Indeed, smaller U.S. importers might face additional burdens when forced to compete with large American companies than can afford said lawyers and win cheaper metals. No wonder, then, that American steel users have called the deal “disappointing” and warned of “market manipulations and… gaming of the system that could put this country’s smallest manufacturers at an even further disadvantage.”

Only the complete removal of the tariffs would ensure broad benefits for U.S. consumers and the economy.

Beyond the economic concern, the EU deal is also a troubling development for efforts to reform Section 232. The title of the White House release speaks volumes, announcing “The United States and European Union To Negotiate World’s First Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.” Nowhere in the release are the words “national security” mentioned—even though that was the alleged basis for the tariffs in the first place. While addressing the carbon footprint of the steel and aluminum industries may be a legitimate federal government objective, it has nothingto do with the rationale laid out for the imposition of these tariffs. Thus, if the Biden administration wishes to engage in negotiations on this issue, it should have been separate from discussions on existing 232 tariffs, which Commerce Secretary Gina Raimondo herself admitted when asked about the steel tariffs, “Europe of course is not a threat to American national security.” These tariffs should not be used as leverage to compel our allies to agree to unrelated U.S. interests, and trying to shift the Section 232 tariffs’ focus from a dubious national security threat to climate change is wholly inconsistent with the statute.

The Biden administration is also flouting international law. For starters, it is embracing an interpretation of GATT Article XXI “Security Exceptions” described by law professor Mona Paulsen as “a path whereby any Member may unilaterally act without having to provide any evidence for determining when (and how) an emergency stops” allowing World Trade Organization (WTO) members to “persistently [redraw] their trade relations on the basis of security interests.” The agreement is also likely inconsistent with WTO rules (GATT Article XIII and the Safeguards Agreement) requiring the application of the “most-favored nation” principle to quotas—essentially, countries cannot discriminate between their trading partners. The deal might also violate WTO prohibitions on voluntary export restraints, which the EU here appears to be implementing. Though a future WTO dispute on these issues may be unlikely, the larger concern here is that an agreement between two of the largest WTO Members to ignore multiple rules would set a worrisome precedent for other countries to follow. One would expect such disregard for the United States’ multilateral obligations from President Trump, but now it’s coming from Biden and the EU too.

The rules-based multilateral trading system has succeeded for so long because even the most powerful states agreed to be bound by the rules and voluntarily complied with them in most cases. Today, however, the United States continues to pursue a trade policy that is at odds with the values that undergird that system. When the WTO was established in 1994, those involved in the negotiation issued a declaration affirming that the WTO would launch “a new era of global economic cooperation, reflecting the widespread desire to operate in a fairer and more open multilateral trading system for the benefit and welfare of their peoples.” While the steel industry may cheer, it is hard to see how a backroom deal between two of the world’s largest economies to continue to restrict trade in metals on bogus “national security” grounds does anything for the benefit and welfare of their people more broadly, let alone those in the wider world.

It’s all positively Trumpian.