The United States and the European Union agreed on Monday, May 17, not to escalate their dispute over US steel and aluminum tariffs, averting steep EU tariff hikes while the two sides launch formal talks on addressing excess global capacity largely centered in China.

The European Commission, which oversees EU trade policy, said on Monday it would suspend for up to six months a threatened June 1 doubling of retaliatory tariffs on Harley-Davidson motorcycles, American whiskey, and motorboats, and refrain from slapping tariffs on more US products from lipstick to sports shoes.

But the United States will maintain its tariffs of 25% on steel and 10% on aluminum despite the announcement. Those duties also apply to imports from China, India, Norway, Russia, Switzerland, Turkey, Japan, and South Korea, among other metals-exporting countries.

In a joint statement, Brussels and Washington said that as allies and market-based economies, they could promote high standards, address shared concerns, “and hold countries like China that support trade-distorting policies to account.”

The discussions would seek solutions before the end of the year to the issue of global steel and aluminum overcapacity, although a commission official said a resolution of the tariff dispute should come much sooner.

A month ahead of a visit to Brussels by US President Joe Biden, one EU diplomat said it would have been “terrible optics” if the bloc had raised tariffs on Harley Davidson bikes and products of other US firms.

Bernd Lange, head of the trade committee of the European Parliament, said the United States needed to come to an EU-US summit with a “tangible” commitment to reciprocate the EU gesture. Otherwise, tariff hikes would be justified.

US metals tariffs stay

Former president Donald Trump’s administration cited US national security grounds as the basis for its metals tariffs – measures that steelmakers such as Thyssenkrupp and Voestalpine have said hurt them.

The EU denies that its exports pose any security threat and responded by placing its own tariffs on 2.8 billion euros ($3.4 billion) of US products, including motorbikes, whiskey, and orange juice. They will also remain in place.

The suspension of further tariffs was greeted as a step in the right direction, however, by European Aluminium, the US Distilled Spirits Council, and Harley-Davidson, whose shares rose more than 8% to a three-year high.

The American Iron and Steel Institute said it hoped US-EU discussions could work toward substantive solutions, while maintaining trade measures. It also said China was not the sole cause of overcapacity and that import surges had come from every region.

Some US steel industry executives say that European governments also must commit to stop propping up domestic steelmakers with subsidies and state investments.

“We cannot support any approaches that do not provide measurable positive results” to strengthen US employment, the United Steelworkers union said in a statement. “The EU is an important ally, but in the past, it has been part of the problem, not part of the solution.”

The EU had urged the United States to suspend its metals tariffs for six months, mirroring the four-month suspension the two sides agreed in March in their aircraft subsidy dispute.

The US Trade Representative’s office and Commerce Department did not respond to requests for further comment on the joint statement.

The commission has said the US tariffs affect 6.4 billion euros of EU metal exports and that it would “rebalance” the remaining 3.6 billion euros after three years, or after a favorable ruling by the World Trade Organization, where it is challenging the US tariffs. – Rappler.com

$1 = 0.8221 euro