EU and US our narrow loophole in Trump's trade wall

The US and European Union authorities recently pledged to end a long-standing trade dispute over steel and aluminum.

Under the terms of the new agreement, a system of tariff and tariff quotas will be introduced. This will be based on average import volumes over the three-year period prior to the introduction of Section 232 measures in 2018. In response, the EU agreed to remove duties on a number of US products.

Between 2015 and 2017, the US imported an average of 4.3 million tonnes of steel from the EU per year. Annual data for 2021 shows that inflows in the current twelve-month period will be approximately 2.5 million tonnes.

US steelmakers are projected to produce 87 million tonnes in 2021. The potential rise in imports from the EU by 1.8 million tons represents just over 2 percent of total US production.

Consequently, the policy change will have a relatively minor effect on the supply of steel in the country. However, other large exporting countries such as Japan are expected to negotiate with US authorities in an attempt to close a deal similar to the one in the European Union.

Steel buyers in the United States will no doubt appreciate the opportunity to purchase more material from outside the country. Most of them have recently been disappointed by their lack of supply options.

However, many market participants are uncertain how any future agreement will be enforced and how volumes will be determined. A first-in-first-out scenario could result in fees for any quantities that exceed quotas.

With the new agreement going into effect on January 1, European steel suppliers may not be able to take full advantage of the benefits until mid-2022, at the earliest. There are obvious difficulties in getting materials to the Midwest of the United States during the winter.

In addition, high transport costs and a shortage of ships exacerbate transport problems around the world. These supply bottlenecks are unlikely to be addressed in the short term.

Nonetheless, the EU steelworkers are trying to immediately benefit from the new trade agreement. The mills are offering price increases to local consumers, expecting supply to decline amid increased export opportunities.

However, at this stage, the direct impact of the new US-EU trade agreement is expected to be limited on both sides of the Atlantic.