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BRUSSELS — When European Commission President Ursula von der Leyen crosses the Atlantic on Friday for a summit with U.S. President Joe Biden, she will usher in a sea change on how Brussels thinks about trade.
Von der Leyen is poised to give in to American pressure to join a newfangled steel and aluminum club in exchange for Washington dropping its threat to reimpose tariffs on imports of the metals from Europe. In their place, the U.S. and EU would erect a protective wall around both their markets in a bid to fend off China’s rise.
It’s a move that will cement the political friendship between Biden and von der Leyen. But it’s one that may dismay European trade officials who have sought to uphold the rules-based global order and its guardian, the World Trade Organization. And there is unease in some EU capitals over the shift.
Von der Leyen and her top aides are “in the pocket of what the U.S. wants,” said one EU diplomat of the impending strategic shift, speaking on condition of anonymity because they were not authorized to go on the record.
It’s an “if you can’t beat ‘em, join ‘em” moment that amounts to a belated recognition of the rationale behind Donald Trump’s decisions to impose tariffs on European steel and aluminum back in 2018 and to hobble the WTO.
Those tariffs were suspended in 2021 by the Biden administration while the two sides sought a compromise by the end of this month.
According to a U.S. version of a negotiating document seen by POLITICO from late September, Washington was adamant that the two parties should impose joint tariffs of at least 25 percent on steel and 10 percent on aluminum from non-market economies “within 6 months of entry into force of the agreement.”
Another condition for club membership is to limit CO2 emissions in steel and aluminum production — but the draft proposal says that won’t happen until 2026. It gives the U.S. ample time to come up with a carbon measurement system, since they have a government study that’s been commissioned for 2025.
The American idea of a joint tariff wall is heresy for the Eurocrats in the Commission’s feisty trade department — who have defended WTO rules that ban discrimination against countries granted most-favored nation status.
Diplomatic kabuki
Von der Leyen’s team is leading pre-summit negotiations with Biden’s National Security Council, despite the angst in the EU’s trade department. And she is shaping up to make a big political call.
The calculus behind von der Leyen’s strategic rapprochement with the Biden administration is that the collateral damage to the international political system would be less than if Trump returns to the White House in next year’s presidential election. Trump has already threatened to impose a 10 percent across-the-board tariff on all imports if elected.
“The EU wants to come up with something to please the Americans,” said a Europe-based trade lawyer, who also spoke on condition of anonymity due to the sensitivity of the issue. “I don’t think that WTO compatibility is at the moment on top of the concerns.”
The Biden administration, for its part, is “not going to do anything right now that would put steel workers in Wisconsin, Pennsylvania or Ohio in jeopardy ahead of the 2024 elections,” said Keith Rockwell, a senior research fellow at the Hinrich Foundation and global fellow with the Wilson Center.
Keeping up appearances
So while both Brussels and Washington are scrambling to secure a deal, the EU isn’t yet jumping into the U.S. camp with both feet.
According to the EU’s track changes in the U.S. draft seen by POLITICO, Brussels is calling for “the Parties [to] consider as a reference point” 25 percent on steel and 10 percent on aluminum as “adequate tariff protection.”
The protectionist pivot comes as the OECD, which groups advanced economies, has warned that the global steel market is facing growing overcapacity — which it attributed to Chinese investment in new production capacity in Asia and elsewhere — at a time of softening demand.
In addition to throwing up new defenses against Chinese steel, the European Union recently launched an anti-subsidy investigation into China’s all-conquering electric vehicle makers. There’s also talk in Brussels that a probe into Chinese wind turbines could come next.
The EU intends to achieve such adequate protection through existing trade defense methods, in a bid to appear compliant with WTO rules.
Brussels is also pushing back against Washington’s desire to get exempted from the EU’s carbon border levy, according to language that was struck through by the European side in the draft proposal.
The concern at the WTO is that the transatlantic steel club would further undermine the global trade body, which has been effectively sidelined as a referee in international trade disputes since Washington blocked appointments to its upper court.
“There will be no clean solution from the WTO perspective — that’s clear,” said an industry representative. “But are the rules still made for the times we’re living in?”
After Biden and von der Leyen shake hands on a deal, it will be up to officials on both sides of the Atlantic to translate the political ambition into a binding deal by January 1.
“I would not say that this is a case of the EU caving in,” Rockwell said. “I would say it’s a very interesting diplomatic exercise with both sides showing flexibility that might not have been anticipated beforehand.”
