U.S. Struggles to Turn Steel Imports ‘Green’ With Tariffs

That is proving to be easier said than done.

Biden’s plan calls for imposing tariffs on steel and aluminum imports based on how much greenhouse gases are emitted in production. That mechanism, dubbed the Global Arrangement on Sustainable Steel and Aluminum, would initially apply to the European Union countries beforeexpanding to other allies later.

The new pact, if successful, could alter the global trade for industrial materials, shifting advantages across borders. Products made from recycled metals using solar power in the U.S. and Germany could gain an edge over those made at coal-fired blast furnaces in China and Ukraine, triggering trade disputes.

So far the U.S. and EU can’t agree on how to design the new system.

EU officials insist the arrangement should be based on the bloc’s own newly approved plan to impose tariffs on imported materials based on the price of carbon paid by domestic producers. The levy aims to protect European manufacturers facing high costs of climate measures against cheap imports.

The U.S., which doesn’t have a comparable domestic carbon pricing mechanism, wants the bilateral arrangement to work independently of the EU program and be based on the carbon footprint of traded products.

“We are asking the EU to think about things differently," an administration official said.

The clock is ticking. The plan under negotiations would replace Trump-era steel and aluminum tariffs, which were designed to fight a China-induced global metals glut but which also hit allies including the EU and Japan. The Biden administration suspended the tariffs in late 2021 for two years and started negotiating the new arrangement.

If they fail to agree, the tariffs could return at the end of 2023, which could trigger European retaliatory tariffs against billions of dollars of U.S. products including whiskey.

“They are trying to reconcile two very different approaches on the carbon intensity trade measure," said Kevin Dempsey, head of the American Iron and Steel Institute, a trade group. “My sense is we still have the same fundamental disconnect."

U.S. and EU officials say they are engaged in intense negotiations and committed to concluding them by October. Washington proposed a negotiating text in late May and is awaiting Brussels’s response.

To support the negotiations, the Biden administration is preparing to request steel and aluminum companies to provide carbon data on their products through the independent U.S. International Trade Commission.

U.S. Trade Representative Katherine Tai said in a letter to the ITC this week that a report compiling the data should be delivered by Jan. 28, 2025, suggesting that the preparation will continue beyond Biden’s first term. She said the U.S. and EU will seek to conclude the negotiation by October 2023.

The carbon tariff plan addresses several of Biden’s goals.

It would restrict imports of cheap and high-carbon metals from China, protect Americanjobs andencourage a shift to cleaner steel and aluminum production.

It would help Washington strengthen ties with allies by forming a tariff-free club of green steel producing nations.

The plan is viewed skeptically by many in the U.S. business community, including companies that rely on imports.

“My observation is that proponents see this as an opportunity to be blatantly protectionist under a thin veneer of climate action," said Jake Colvin, president of National Foreign Trade Council, an industry association that represents top companies in the auto, tech and retail sectors.

Supporters include the U.S. steel industry and its union workers, albeit with some differences between companies over how to measure carbon contents. That is because it was specifically designed to take advantage of the relatively low carbon content of American products, stemming from the availability of cheap natural gas and widespread use of recycled metals to make new steel, rather than carbon-intensive coking coal.

European products generally have higher carbon contents. Asia producers including Japan and South Korea fare worse.

“We are spending money to be greener," said Lourenco Goncalves, chief executive of Cleveland-Cliffs and a carbon-tariff supporter, at a May industry gathering. “We have put our money where our mouth is."

The United Steelworkers union didn’t respond to requests for comment.

Unions are a key constituency of Biden. While the plan to negotiate a green-steel deal with the EU was announced by the Biden administration in 2021, Democratic policy makers were discussing ideas for an alternative policy to the Trump tariffs well before the 2020 elections.

Biden detailed his support for the green-steel plan in a May 2020 letter to the United Steelworkers, where he said the U.S. would “impose carbon adjustment fees or quotas on carbon-intensive goods from countries that are failing to meet their climate and environmental obligations."

Days later, the union endorsed Mr. Biden in time for primaries in critical states such as Pennsylvania.