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Negotiations on an end to reciprocal U.S.-EU punitive tariffs on aluminum and steel are scheduled for next Wednesday. The steel lobby already welcomes a possible quota solution. Aluminum producers, on the other hand, reject import quotas on aluminum. Energy and metal prices are closely linked. And Evergrande is not a Lehman moment for China and the world.

Stainless Espresso: EU-U.S. negotiations on steel and aluminum tariffs to begin Wednesday
Stainless Espresso: EU-U.S. negotiations on steel and aluminum tariffs to begin Wednesday

EU-U.S. negotiations on steel and aluminum tariffs to begin Wednesday

Next Wednesday, September 29, 2021, negotiations between the European Union and the United States on the settlement of tariff disputes will begin. In particular, of course, the mutual steel and aluminum tariffs are in the foreground.

Is the quota system for steel and aluminum coming?

The Biden administration currently seems to favor a quota system for aluminum and steel as a solution approach and wants to introduce it into the negotiations. The EU is also showing signs that it could live with a quota system. The only problem is that aluminum and steel are being thrown into the same pot. The quota system is welcomed by the steel lobby and rejected by the aluminum lobby.

Advantages and disadvantages of a quota system for steel:

A quota system would make it easier for steel producers to move products between the two economic zones. Probably to the great detriment of EU consumers, since U.S. steel prices are much higher than those in the European Union and exports to the U.S. are therefore very attractive. In addition, many U.S. steel producers are part of European megacorporations.

EU with massive steel overcapacity

The biggest disadvantage for the U.S. industry would be the massive European overcapacities. At 26% of total production, EU steel prodcuers have the highest steel excess capacity in the world – even higher than China’s (only between 13 – 20%). EU27 (excl. UK) exported more than 56 million tons, or 1/3 of their total steel production, to the world in 2019. And still have 90 million tons of unused production capacity left – almost as much as India alone.

Advantages and disadvantages of a quota system for aluminum

U.S. aluminum producers are highly critical of a quota system for aluminum because their entire production and supply chain is different than that for steel. Unlike iron ore for steel, the United States (like the EU) has little significant bauxite mining capability. Many aluminum precursors for the U.S. market must be produced outside U.S. borders and then imported.

The aluminum industry would be disadvantaged by a quota system – aluminum producers on both sides of the Atlantic obviously agree on this. Steel producers, on the other hand, prefer a quota system. And two administrations that habitually fail to recognize any difference between steel and aluminum. So it will be exciting to see who will be the more successful in the end.

And we’ll think out loud and ask ourselves whether the digital tax could become part of the negotiating mass between the EU and the U.S.. Freely along the lines of “What are you giving? What do I give?”

Closely related: Energy and metal prices

Energy prices have risen in recent months, in some cases significantly, due to shortages of natural gas, for example. In the same wake as prices for metal, such as stainless steel and aluminum. Together this is driving up production and purchasing costs. Therefore, it is now time to look at procurement processes and optimization potential and to cover the demand for the coming winter months in a cost-efficient way.

Evergrande is not a Lehman moment

We welcome it when Western reporting relies more on facts instead of polemics. This can be read very clearly in an interview of the German news magazine ntv with the China expert Mirko Wormuth. Behind a rather polemical headline is an interesting insight into the actual scope of the Evergrande crisis.

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