Steel, Aluminum Tariffs to Remain Above Pre-Trump Levels

It is not asking much to undo President Trump’s doubling of U.S. tariffs, which are a major contributor to today’s supply network crisis. But apparently even this is asking too much from an administration that largely shares Trump’s economic views. While the weekend’s news about the easing of steel and aluminum tariffs against the European Union was welcome, it is too small to do much good. Nor does it treat root problems.

The tariffs will actually remain in place. The U.S. will simply allow 3.3 million metric tons of EU-made steel into the U.S. duty-free before charging tariffs. For context, U.S. producers made 72 million metric tons of steel in 2020, so the exemption will have only a small effect on steel prices. Shipments beyond 3.3 million metric tons will still be charged a 25 percent tariff. In addition, the EU agreed to not enact new retaliatory tariffs that were scheduled to take effect on December 2.

Not imposing new tariffs is different from lowering existing ones. It also has a much effect. Under the new agreement, all other existing trade barriers will remain in place. Total U.S.-EU trade barriers will remain higher than they were four years ago. This is bad news for consumers and producers on both sides of the Atlantic, at a time when prices are rising and supply networks are strained.

The agreement even adds new trade restrictions where there were none before. The New York Times reports:

The agreement will also place restrictions on products that are finished in Europe but use steel from China, Russia, South Korea, and other countries. To qualify for duty-free treatment, steel products must be entirely made in the European Union.

Tariffs mean higher prices. The new exemption’s small size means that steel and aluminum prices will remain above pre-tariff levels. Cars, construction, and other steel-using industries will continue to have shortages and higher consumer prices.

The exemption will also do little to relieve strained supply networks. For example, there is now a shortage of truck trailers, called chassis, used for hauling shipping containers to and from ports. Chinese-made chassis are currently subject to 220 percent tariffs, which makes them unaffordable for many smaller trucking companies. Washington’s goal is to have them buy American-made chassis instead.

The trouble is that those tariffs also allow U.S. chassis producers to keep their prices high. They don’t have to worry about truckers turning to competitors—which is ironic in a time of rising antitrust enforcement. While that goes straight to the chassis makers’ profit margins, it harms everyone else. Ports stay clogged, truckers can’t do much to help unclog them, and consumers face higher prices and shortages. About the only winners are domestic steel producers and their labor unions, which is likely the point.

The U.S.-EU trade dispute also remains unresolved. This agreement is more of a cease-fire. A law of tariffs, rediscovered during the Trump era, is that other countries nearly always retaliate in kind against new tariffs. What happened here is that the U.S. is partially rolling back one of its new tariffs, and the EU is rolling back its retaliation. Nothing has been liberalized on net. Other long-running disputes over aerospace subsidies and other issues remain in play.

COVID-19 is still hampering the economy and supply networks are still in crisis. Now would be a good time for actual trade liberalization, rather than merely preventing another round of protectionist escalation. But on trade, as with many other issues, the Biden administration is difficult to tell apart from its predecessor.

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