EU’s TRQ Push: Countering US Tariffs, China’s Overcapacity, and Securing Steel & Aluminum Market Access

The European Union’s steel and aluminum sectors are currently facing substantial 50% tariffs imposed by the United States. In response, the European Steel Association (EUROFER) is advocating for the swift negotiation of a Tariff-Rate Quota (TRQ) system. This initiative aims to restore crucial market access for EU producers and foster deeper transatlantic cooperation to counter global overcapacity, particularly stemming from China.

Key aspects of the current situation include:

• The U.S. levies 50% tariffs on EU steel and aluminum, extended to cover approximately 400 steel derivatives.
• EUROFER seeks a Tariff-Rate Quota (TRQ) system to mitigate these tariffs and ensure market stability.
• A TRQ system allows specific import volumes to enter the U.S. tariff-free or at reduced rates.
• Global steel overcapacity, primarily driven by China, poses a significant challenge to the industry.
• Transatlantic cooperation is seen as essential for addressing both market access and global overcapacity issues.

Understanding the Tariff Landscape

Current Tariffs and Previous Systems

The current administration under President Donald Trump has imposed significant 50% tariffs on EU steel and aluminum. These duties were further expanded in August to encompass approximately 400 steel derivatives, marking a considerable escalation from the earlier 25% tariffs on steel and 10% on aluminum. Prior to this, under the Biden administration, a Tariff-Rate Quota (TRQ) system was in place. This system allowed predefined volumes of EU steel and aluminum to enter the U.S. market without tariffs, with higher duties applied only to quantities exceeding these agreed quotas.

The TRQ Mechanism

A TRQ system permits a set volume of imports to enter a market at reduced or zero tariffs, with any subsequent quantities incurring higher duties. EUROFER views this mechanism as the most viable, though imperfect, pathway for EU producers to maintain their presence in the U.S. market. While recent U.S.-EU discussions established a 15% tariff on most other EU industrial goods, steel and aluminum were specifically excluded from this agreement. However, a joint statement did indicate an intention to explore cooperation on supply chains and overcapacity, explicitly mentioning the consideration of “tariff-rate quota solutions.”

Addressing Global Overcapacity

The Scale of the Problem

Beyond immediate market access concerns, TRQs also offer a critical tool for tackling the persistent issue of global steel overcapacity. According to figures from the Organisation for Economic Co-operation and Development (OECD), global overcapacity reached an alarming 600 million tons last year, with projections indicating a rise to 720 million tons by next year. China is a primary contributor to this problem, possessing over 500 million tons of excess capacity within its heavily subsidized industry. This immense capacity allowed China to absorb initial 25% U.S. tariffs with cheaply priced products, which in turn prompted the subsequent increase in tariffs to 50%.

Transatlantic Cooperation Potential

The combined market power of the United States and the European Union could exert substantial pressure on producers worldwide to reduce overcapacity. This strategic alignment was a core principle behind the Global Arrangement on Sustainable Steel and Aluminium (GASSA), an initiative launched in 2021. GASSA aimed to combat global overcapacity and promote the production of lower-carbon steel. However, the initiative was paused following President Trump’s return to office. A significant obstacle to GASSA’s revival is the EU’s Carbon Border Adjustment Mechanism (CBAM), which the U.S. has expressed opposition to.

Outlook and Benefits

Immediate and Long-term Impact

Establishing a stable TRQ framework would immediately alleviate the significant tariff burdens currently faced by EU steel and aluminum exporters. Simultaneously, such a framework would provide a crucial mechanism for enhanced transatlantic collaboration on vital industrial and environmental challenges. By working together, the U.S. and EU could foster greater stability within the global market and collectively address issues like overcapacity and sustainable production.