Blue Steel

I refuse to join any club that would have me as a member

Hello,

I spent the last couple of days in Washington DC (pics below), and it turns out that absolutely no one has a clue which way the Supreme Court is going to rule on the IEEPA tariffs. Or at least, I asked six different people and got around six different answers. One thing everyone agrees on, though, is that as per the last edition of MFN, whatever happens, there will still be loads of tariffs.

Anyway, on the subject of tariffs, we’ve finally had confirmation that the EU is getting in on the game when it comes to steel.

Earlier this week, the Commission published its proposal to replace the existing 25% steel safeguard tariffs and country-specific quotas, which expire next year, with new, more restrictive country-specific quotas, and a 50% outside-of-quota tariff rate.

In summary, the regulation will …

• limit tariff-free import volumes to 18.3 million tons a year (a reduction of 47% compared to 2024 steel quotas),

• double the level of out-of-quota duty to 50% (compared to the 25% under the safeguard) and

• strengthen the traceability of steel markets by introducing a Melt and Pour requirement to prevent circumvention. [Note: this change is particularly important because in practice it will severely limit most countries’ use of their own specific quotas, given that lots of steel produced in, say, the UK, isn’t melted and poured in the UK.]

Much of the focus has been on how these tariffs will negatively impact partner countries such as the UK (note: unlike an earlier leaked draft, there now seems to be some intention to make accommodations for Ukraine).

However, I’m slightly more interested in Article 4, 1 (e), which basically says that the EU could agree to bigger quotas in the event it reaches a deal with the US.

See:

The context here is that — as a bit of continuity from the Biden administration, which pushed the same thing but pretended it was to deal with climate change — the US is continuing to pressure the EU and others to join its efforts to tariff the hell out of Chinese steel and possibly even form a club.

And, after years of objection, it appears to me that the EU is finally willing to give it a try.

Consider that the US has applied 50% tariffs to steel, and now the EU has matched those. The US applies strict melt-and-pour origin rules, and now the EU has matched those.

The key question here is whether, by effectively extending the US’s tariff wall to its own border, the EU can negotiate a tariff reduction for EU steel exports to the US, and vice versa.

Or if you prefer your information in infographic form:

And, y’know … maybe?

---

The Limits of The Special Relationship

I think it is fair to say that the UK currently has one of, if not the best, relationships with Donald Trump. He did a state visit, has a golf course in Scotland, and also decided to sign his first-ever second-term [kinda] trade deal with the UK.

The reason I mention this is that, from a trade perspective, the US-UK relationship provides a reasonable benchmark of what a country can and cannot achieve with the US purely through good vibes and balanced trade.

And while it is true to say that the UK has done, relatively, well in some aspects (for example it got a deal without offering any concrete investment commitments and very little tariff liberalisation), the vibes alone weren’t enough to, for example …

• Finalise an agreement on steel and aluminium tariff-rate quotas [although I would emphasise that the UK is still benefiting from a lower (25%) rate than everyone else (50%)

• Lock in explicit lower tariff rates on future section 232 tariffs, such as pharmaceuticals and semiconductors [in contrast the EU and Japan]

• convince the US to incorporate its MFN applied tariff (varies by product) in the 10% reciprocal rate, leaving UK exports in instances where the US MFN tariff is >5% worse off relative to their EU and Japanese competitors

• Carve out a specific tariff exemption for whisky

This could, of course, change. But for now, I think the lesson is that while Trump is slightly nicer to his friends, friendship isn’t enough to get you off the hook entirely.

Perhaps the UK should consider offering him a knighthood as the next tactic in its negotiations …

---

The day job

As some of you know, I have a real job advising companies and investors on what to do about all this trade stuff.

Anyway, if you’re at all interested in what that looks like in practice, some colleagues and I have set out what it is exactly we do HERE.

---

What is the tariff rate?

Over in the FT Alphaville, Toby Nangle has written a piece trying to work out what the US’s average applied tariff is right now. And he has concluded, rightly, that it is pretty much impossible to work out.

Read it HERE.

Confounding chart, here:

---

Pics

The joy of being somewhere briefly is that you never adjust to the time difference and end up doing things you would absolutely never do at home, such as going out for a run at 5AM.

The results:

---

Best,

Sam