The tariff truce between the United States and the European Union initially appeared to be a win-win situation. But according to Gerd Götz, CEO of the European Association (EAA), it is in fact a “losing situation for the aluminum industry and its downstream customers on both sides of the Atlantic”.
The deal is the result of the United States’ decision to eliminate tariffs on exports, keeping them at 25% on steel and 10% on aluminum. While the European Union, in response, will suspend the rebalancing measures it has put in place to counter their impact.
The political sleight of hand causes the exchange of one trade barrier for another and the cost of aluminum is unlikely to be reduced for European or American consumers
“The United States looks forward to joining other trading partners and key stakeholders to address the global challenge of excess steel and aluminum,” the Commerce Department said in a press release. last October 31.
Tariffs to be replaced by quotas
The dispute dates back to 2018, when the administration of former President Donald Trump introduced tariffs on steel and aluminum from Europe, Asia and elsewhere, citing risks to the national security.
On the other hand, customs duties on European imports will be replaced by duty-free quotas based on 2018-2019 volumes. This translates to 18,000 tonnes of raw aluminum and 36,000 tonnes of forged products.
“The elimination of this tariff charge on American whiskeys provides a stimulus for farmers and distillers and also supports the recovery of restaurants, bars and distilleries in the EU affected by the pandemic,” said Chris Swonger, director of the Distilled Spirits Council of United States.
Joe Biden’s administration is limited to the alternation of policy options set out in the US Department of Commerce Section 232 analysis.
This report suggested that “specific countries” could be partially or totally exempted from tariffs on the basis of “an overriding economic or security interest of the United States, which could include its willingness to deal with global overcapacity and other challenges facing the US aluminum industry ”.
The target for tariffs introduced by Trump in 2018 was to achieve steel and aluminum production above the 80% level.
Due to tariffs, US production increased from 741,000 tonnes in 2017 to 1,126,000 tonnes in 2019.
In the first nine months of 2021, domestic production of primary metals fell 16% with a September annualized production rate of 901,000 tonnes. That is to say a capacity utilization rate of 50%, despite the jump in the price of aluminum to an annual peak of $ 3,229 per tonne, against less than $ 2,000 per tonne in the first quarter of 2018 , just before the entry into force of the tariffs.
Intermediate manufacturers have taken advantage of US tariffs at the expense of downstream manufacturers, as they end up paying the tariff-adjusted total price for aluminum. Even if the student comes from recycled sources.
Jake Colvin, chairman of the National Council for Foreign Trade, said the deal is a step in the right direction, however tariffs will continue to create uncertainty for businesses and their workers.
The EAA warned that TRQs would lead to further trade distortions and create additional market instability for the value chain.
Meanwhile, the United Steelworkers have welcomed the deal, saying it will help keep US industry competitive.
What everyone agrees on is the continuing need to restrict China’s excess capacity and exports.
President Joe Biden said the deal with the EU “will help restrict access of dirty steel from countries like China to our markets.” But in China, they are fully aware of the growing differentiation between low carbon aluminum and high carbon aluminum, so it might not work for aluminum.
The Hongqiao Group, China’s largest private operator, has already moved 1 million tonnes of capacity to harness hydropower resources in Yunnan province, which is home to the country’s largest aluminum capacity powered by renewable energy. This could increase the amount of “green” aluminum which could be low carbon enough to penetrate the carbon walls of Europe or anyone else.
China may not have participated in COP-26, but its decarbonization campaign still has a direct impact on aluminum.