The U.S.-EU Summit and the Double Irony of GASSA

Peter S. Rashish

Vice President; Director, Geoeconomics Program

Peter S. Rashish, who counts over 30 years of experience counseling corporations, think tanks, foundations, and international organizations on transatlantic trade and economic strategy, is Vice President and Director of the Geoeconomics Program at AICGS. He also writes The Wider Atlantic blog.

Mr. Rashish has served as Vice President for Europe and Eurasia at the U.S. Chamber of Commerce, where he spearheaded the Chamber’s advocacy ahead of the launch of the Transatlantic Trade and Investment Partnership. Previously, Mr. Rashish was a Senior Advisor for Europe at McLarty Associates, Executive Vice President of the European Institute, and a staff member and consultant at the International Energy Agency, the World Bank, UNCTAD, the Atlantic Council, the Bertelsmann Foundation, and the German Marshall Fund.

Mr. Rashish has testified before the House Financial Services Subcommittee on International Monetary Policy and Trade and the House Foreign Affairs Subcommittee on Europe and Eurasia and has advised three U.S. presidential campaigns. He has been a featured speaker at the Munich Security Conference, the Aspen Ideas Festival, and the Salzburg Global Seminar and is a member of the Board of Directors of the Jean Monnet Institute in Paris and a Senior Advisor to the European Policy Centre in Brussels. His commentaries have been published in The New York Times, the Financial Times, The Wall Street Journal, Foreign Policy, and The National Interest, and he has appeared on PBS, CNBC, CNN, and NPR.

He earned a BA from Harvard College and an MPhil in international relations from Oxford University. He speaks French, German, Italian, and Spanish.

There are two ironies in the absence of an agreement on a “Global Arrangement on Sustainable Steel and Aluminum” (GASSA) at last Friday’s U.S.-EU summit in Washington, where President Biden hosted European Council President Charles Michel and European Commission President Ursula von der Leyen. Under the proposed terms of the deal, the United States would permanently lift tariffs placed on the EU by President Trump in 2018 under the authority of Section 232 (the national security exception) of the 1962 Trade Expansion Act once Washington and Brussels agreed on a joint approach to unfairly subsidized and carbon-intensive metals production. The goal is free trade of steel and aluminum across the Atlantic and to use measures that would limit or block the imports of non-compliant products from elsewhere. China, whose coal-powered exports have flooded world markets with overcapacity, is top of mind.

The first irony is that the Trade Expansion Act was the economic pillar of the goals set out in President Kennedy’s July 4, 1962, speech in Philadelphia calling for a “Declaration of Interdependence” with Europe. The Act ultimately led to a reduction of transatlantic tariffs in a multilateral context, helping to join the economic destinies of the United States and the new Common Market that later became the European Union. But instead of promoting common cause, the Act’s Section 232 continues to burden the U.S.-EU relationship five years after it was used by the Trump administration, since the tariffs have only been temporarily removed pending agreement on GASSA.

The second irony is that when the Trade Expansion Act was drafted in the early 1960s, the tariff-enabling powers of the national security exception in Section 232 had one country in mind: the Soviet Union, which no longer exists. But even putting aside this geopolitical reality, there is something upside down about the fact that U.S. tariffs could—at least in principle—be reimposed on a like-minded economic superpower that is its principal ally in combating today’s version of the kinds of threats posed by the Soviet Union sixty years ago.

The lack of an effective multilateral framework to deal with both climate change and subsidies in the World Trade Organization (WTO), but also the nonbinding nature of the commitments in the United Nations Framework Convention on Climate Change, is part of the reason GASSA has been so elusive. Ideally, the United States and the European Union would rely on the WTO for a combination of trade liberalization in green goods, launching disputes over unlawful Chinese subsidies, and, most importantly, reforming the institution’s rules to accommodate greater climate action by governments. But all of that is either politically uncertain or would take too long given the urgency of the challenge.

The lack of an effective multilateral framework to deal with both subsidies and climate is part of the reason GASSA has been so elusive.

The result is that other avenues are being explored, especially as regards the climate. The EU has chosen a price-plus-tariff approach with its Carbon Border Adjustment Mechanism that has begun to come into effect this year while the United States opted for incentives with the Inflation Reduction Act passed in 2022. The problem for GASSA is that these two approaches are not perfectly compatible starting points.

Not only that: the challenge of climate change is so enormous that no one approach—be it a carbon price, subsidies, tariffs, standards, regulation, or financial aid to poorer countries—is likely to be sufficient. There needs to be a framework that encompasses all these policy tools.

That is where a “Climate Club,” an idea proposed by the German government presidency of the G7 last year, may offer a way forward. By creating a forum where the G7 and potentially another thirty or forty like-minded countries can come together, the impact of any climate measures would be greater than anything that Washington or Brussels can accomplish alone. And by shifting the focus from a transatlantic debate that has been mainly about tariffs to a multi-country one about a range of measures, there is more likelihood that the United States and the European Union—who will remain the key climate policy drivers—will find common ground.

For now, it appears that a continued U.S.-EU truce on steel and aluminum will hold at least through this year and possibly until after the U.S. presidential election in November 2024. Taking at least some of the politics out of GASSA should mean greater negotiating flexibility, particularly on the U.S. side.