New Tariffs Pose 50% Burden on EU Steel Exports to US

An expert has warned that the newly announced comprehensive tariff measures could pose significant challenges for businesses, primarily due to the high administrative burden involved. The director of the Global Policy and Strategy School at the University of California, San Diego, highlighted that a substantial portion of the costs associated with these tariffs would stem from administrative expenses. The complexity of implementing tariffs across multiple countries adds to the overall burden.

The expert further noted that the new tariffs exacerbate the uncertainty caused by trade conflicts, which could have broader implications for the global economy. The uncertainty surrounding investment costs has led many businesses to adopt a wait-and-see approach, which could slow down global economic growth. The expert expressed concern that the lack of clarity on investment costs is deterring many businesses from making crucial investments, thereby hampering economic progress.

The new tariffs are expected to have a significant impact on the steel industry, particularly in Europe. The European steel industry faces a substantial burden due to the 50% tariff on steel exports to the United States and a 15% tariff on steel-intensive products. This could potentially halt EU steel exports to the United States, which were projected to reach 380,000 tons in 2024. Additionally, despite the inclusion of automobile exports in the 15% uniform tariff (previously 25%), the European steel industry anticipates that automobile exports will still be affected.

In 2024, the EU is expected to export approximately 760,000 vehicles to the United States, with a tariff rate of 2.5%. This equates to around 100,000 tons of steel, much of which is now at risk due to the new tariffs. The European Commission President, Ursula von der Leyen, indicated that there is still potential for a solution to reduce tariffs following a meeting with Donald Trump in Scotland. She emphasized that both the EU and the United States face the common challenge of global overcapacity in steel and aluminum. The two regions are committed to ensuring fair global competition and reducing barriers through tariff reductions and quota systems.

Analysts have expressed concerns about the continued impact of the 50% tariff on steel, which has had a devastating effect on major steel trading partners of the United States. While there is hope for a quota system with the EU (and possibly the UK), the U.S. President has not publicly acknowledged this possibility. As of now, the steel tariffs and the associated uncertainty are expected to persist. Following the extension of the "reciprocal" import tariff negotiations proposed by the U.S. President, the White House has announced five trade agreements, with the EU agreement being the fifth. Prior to this, the U.S. had reached framework agreements with the UK, Vietnam, Indonesia, the Philippines, and Japan, imposing "reciprocal" tariffs of 20%, 19%, 19%, and 15% on imported goods, excluding steel and aluminum. Recent negotiations with Japan confirmed that the 50% import tariff on steel will remain in effect.

The EU has agreed to allow the U.S. to make multiple investments in exchange for a 15% tariff rate, which is half of the 30% "reciprocal" tariff previously threatened by the U.S. President. The EU has committed to purchasing 750 billion dollars worth of liquefied natural gas, oil, and nuclear fuel over the next three years, in addition to investing an extra 600 billion dollars in the U.S., including the purchase of military equipment.

Current data indicates that EU steel prices are declining due to weak domestic demand and the loss of the key U.S. export market, which was affected by the 50% tariff. Many steel mills are planning to extend their summer shutdowns to mitigate the price decline. Despite recent revisions to import safeguard measures by the EU, competition from low-cost Asian imports continues to drive prices down. There is a risk that Asian-origin exports, which may be diverted from the U.S. to Europe, could further exacerbate the price decline. The uncertainty surrounding the tax costs associated with the EU's Carbon Border Adjustment Mechanism (CBAM) is one of the few factors supporting European steel prices.

In contrast, U.S. steel prices remain stable. Despite strict import restrictions on steel, ongoing trade negotiations have left many buyers in a state of uncertainty. Some aspects of the trade agreements could potentially improve market sentiment and steel demand. The agreements appear to follow a template that includes U.S. investment and energy commitments. Both the EU and Japan have agreed to significant investments in U.S. manufacturing and increased imports of U.S. energy. If these commitments are fulfilled, they could boost U.S. steel demand.