In March 2018, U.S. President Trump signed into law the introduction of tariffs on imports of steel (25 percent) and aluminum (ten percent). In his electoral campaign, Trump already announced that he intended to protect domestic industrial sectors against unfair foreign competition and to correct disadvantageous trade relationships. The Trump administration justifies the steel and aluminum tariffs with national security considerations. The tariffs are a further manifestation of Trump’s intentions to aggressively respond to what he considers unfair trade practices of other countries, particularly those of China.
The European Union (EU), as well as other allies (above all, the United States’ neighbors and NAFTA partners Canada and Mexico) were initially exempted from these tariffs. A few hours before the expiration of the “grace period” at the end of April, Trump extended the exemption for the EU, Canada, and Mexico once more until the beginning of June 2018. According to the White House, the United States had reached agreements with Argentina, Australia, and Brazil by that time, meaning that these countries will be exempted permanently on the basis of soft import quotas. South Korea reached an agreement on the basis of their KORUS free trade agreement after making concessions to the United States.
However, the United States’ major trading partners, which either refused to negotiate at gunpoint or could not reach a deal in time, are now affected by the measures. Canada, Mexico, China, Turkey and the European Union have since initiated retaliatory tariffs in response.
How to Respond to U.S. Tariffs
In response to the tariffs, the EU had several options to consider – safeguard measures, rebalancing measures, and dispute settlement proceedings within the WTO. All these options have now been deployed.
- Safeguard measures: In accordance with GATT Article XIX and the WTO Agreement on Safeguards, the EU initiated a safeguard investigation in March 2018 in order to evaluate whether a surge of steel imports threatens or causes serious harm to EU steel producers. Provisional safeguard measures on imports of certain steel products came into effect on July 19, 2018: After the actual import level of the most recent three representative years has been reached, an additional duty of 25 percent will be levied. In February 2019 the previously preliminary measures where made permanent and are now supposed to be effective for three years.
- Rebalancing Measures: Additionally, in accordance with GATT Article XIX and the WTO Agreement on Safeguards, the EU implemented compensatory tariffs in the end of June to balance the harm caused by U.S. tariffs.
- Trade Dispute Settlement: In early June 2018, the EU requested consultations with the United States at the WTO as the first step in a dispute settlement procedure. After a consultation period of 60 days, a WTO dispute settlement panel may be established. The EU, Norway and several other countries requested such a panel on October 18, 2018. On November 21, the WTO established seven panels to rule on the legitimacy of the U.S. tariffs under national security exemptions. After the panels are composed, they must rule within nine months whether or not the United States was allowed to impose the tariffs.
The claim that EU steel and aluminum endanger national security in the United States is absurd. The EU complaint therefore does not reference GATT Article XXI, which allows for protective tariffs if the national security of a country is in danger. Rather, the EU bases its complaint on GATT Article XIX and the WTO Agreement on Safeguards.
In mid-July 2018, the United States filed a complaint with the WTO against the countervailing measures of the EU and other countries. In October 2018, the United States requested the establishment of appropriate dispute settlement panels, and in November 2018, the WTO granted the United States the establishment of three panels in disputes over retaliatory tariffs by the EU, China, Mexico and Canada.
Tit-for Tat Protectionism Hurts Everybody
Imports of steel and aluminum do not threaten the national security of the United States. Tariffs also will not strengthen the competitiveness of the country. Rather, an escalation of retaliatory measures and tariffs threatens jobs and income, both in the United States and the EU. The Trade Partnership projects a net loss of 400,000 U.S. jobs as a result of U.S. tariffs and retaliatory measures. Despite modest gains in employment in U.S. steel and aluminum firms, the job losses in manufacturing sectors will be much greater. Two-thirds of these job losses would affect workers in low-skill and production jobs: the very working class who voted for Trump in 2016. Moreover, the tariffs will likely lead to lower consumer spending power in the United States as well as higher production costs.
They will further give rise to retaliatory measures and do not offer a long-term solution to effectively address overcapacities on the world steel market. The U.S. government also endangers the transatlantic partnership that, for decades, has been characterized by trust, continuity, and a common understanding of liberal values. German industry thus calls upon the United States to lift the tariffs. Unfair trade practices should not be tolerated.
The EU rebalancing measures are an important signal. The establishment of a dispute settlement panel at the WTO is the right step. In addition, the transatlantic dialogue should be strengthened, particularly regarding how to jointly address unfair trade practices and overcapacities on world markets – for instance, within existing arenas such as the Global Forum on Steel Excess Capacity. The creation of a similar forum for aluminum should also be considered.