November 2023 Volume 5

WASHINGTON UPDATE

U.S. Carbon Tariffs – One Step Forward, One Back By Omar S. Nashashibi

Following months of negotiations, the United States and European Union (EU) failed to reach an agreement by their self-imposed October 31, 2023 deadline to create a carbon-based tariff system for steel and aluminum imports. At a summit on October 20 with leaders of the European Council and European Commission, President Joe Biden announced that the two sides would continue talks through the end of the year. Upon taking office, President Biden negotiated with the EU an agreement to suspend the 25 percent tariffs on imported steel and 10 percent on aluminum from the 27-nation bloc. In place of these Section 232 tariffs imposed by his predecessor, Washington created a Tariff Rate Quota system to allow a set amount of product to enter the U.S. tariff-free. As part of that 2021 deal, the sides pledged to finalize a framework by October 31, 2023, that the Biden administration hoped would create a Global Arrangement on Sustainable Steel and Aluminum taking effect in January 2024. The U.S.-led proposal would place a tariff on products that exceed a set carbon cost for that import into

the U.S. or EU. Countries not party to the arrangement would pay a higher tariff rate, while products from any country below the set carbon target receive tariff-free treatment. A number of disagreements prevented Washington and Brussels from finalizing a deal this October, but President Biden in particular is committed to a carbon-based tariff at least on steel and aluminum, and in the future, possibly expanded to other imports. The EU insisted that the U.S. permanently lift, and not just suspend the 232 tariffs and quota system, while the Biden administration continues to receive pressure to retain the threat of tariffs until the EU implements trade action on imports from China and others. A carbon-based tariff is clearly aimed at China but also helps the White House 2024 reelection efforts with unions, manufacturers, and other voters in key states such as Wisconsin, Pennsylvania, and Michigan. The effort to restrict carbon-intense imports is also a key element of the Biden administration’s strategy to mobilize environmental groups and those voters important to his reelection efforts.

6

FIA MAGAZINE | NOVEMBER 2023