US scales back hopes for ambitious climate trade deal with Europe

WASHINGTON – For the past two years, the United States and the European Union have been working towards a deal that would encourage trade in steel and aluminium made in more environmentally friendly ways to combat climate change.

But long-standing differences over the way governments should treat trade and regulation have cropped up, preventing the allies from coming to a compromise.

With an Oct 31 deadline to reach a deal approaching,

the US has significantly narrowed its ambition for the pact, at least in its initial iteration.

The outcome has been deeply disappointing for American negotiators, including Ms Katherine Tai, the US trade representative in charge of the talks, according to people familiar with the negotiations. In 2022 speeches, Ms Tai described the potential deal as “historic” and “a paradigm-shifting model” that would reduce carbon produced by heavy industries, while also limiting unfair trade competition from countries such as China, which has been pumping out cheap steel that is not manufactured in an environmentally friendly way.

US negotiators had envisioned setting up a club of nations committed to cleaner production, initially with Europe and later with other countries, that together would act to block dirtier steel, aluminium and other products from their markets. Steel and aluminium production is incredibly carbon-intensive, with the industries together accounting for about a tenth of global carbon emissions.

But Europeans raised a variety of objections to the approach, including arguing that it violated global trade rules for treating countries fairly.

Now, the Biden administration is trying to salvage the talks by pushing for a narrower deal in the coming weeks. The more limited US proposal currently includes an immediate agreement for countries to take steps to combat a flood of dirtier steel from countries like China, as well as a commitment to keep negotiating in the coming years for a framework that would discourage trade in products made with more carbon emissions, the people familiar with the negotiations said.

The agreement is expected to be a point of discussion at a summit planned for Oct 20, when President Joe Biden will meet European Commission President Ursula von der Leyen at the White House.

The stakes are high: The US is poised to bring back Trump-era tariffs on European steel and aluminium on Jan 1, unless the sides reach an agreement, or US negotiators issue a special reprieve. Mr Biden paused those tariffs for two years in 2021, when negotiations began with Europe.

Restoring cooperation between the US and Europe after years of rocky relations during the Trump presidency has been a key objective for Mr Biden and his deputies.

But the talks faced a basic obstacle: the US and Europe have fundamental differences in how they are addressing climate change, trade and competition from China, and neither side is yet willing to significantly depart from its own policies.

The Biden administration has largely dispensed with traditional trade negotiations focused on opening international markets, arguing that past trade deals that lowered global barriers to trade helped multinational corporations, rather than American workers, while supercharging the Chinese economy.

Instead, the Biden administration has embraced tariffs, subsidies and trade arrangements that protect industries in the US and allied countries, while blocking cheaper products made in China. It has done so in lock step with US labour unions, which are opposed to removing tariffs and other policies that protect their industries.

The EU has criticised US tariffs and subsidy programmes as protectionist policies that threaten to undermine international trade rules.

“This administration is trying to significantly retool the way we go about global economic engagement,” said Ms Emily Benson, director of Project on Trade and Technology at the Centre for Strategic and International Studies, a think tank. “What’s unclear is the degree to which our allies buy into that agenda.”

For their part, European officials are putting their efforts into an ambitious new carbon pricing scheme, which would tax companies across a range of industries in Europe and elsewhere for the greenhouse gases emitted during manufacturing. European officials have urged the US to adopt a similar approach but US officials argue such a system is not viable in the country, where Congress would be unlikely to impose new carbon taxes on companies.

The two governments also differ in how to approach China, which makes more than half of the world’s steel, often by burning coal. American steelmakers say their Chinese counterparts receive generous government subsidies that allow Chinese steel to be sold at artificially low prices, unfairly undercutting competitors.

European officials have been more reluctant to target China specifically. While the EU government has begun to take a more sceptical look at Chinese exports, many European nations still regard the country more as a vital business partner than a geopolitical rival.

Given the close alignment between the US and Europe on many issues, the history of trade negotiations between the governments is surprisingly bleak.

The Obama administration pursued a trade deal with Europe that ultimately crumbled as a result of irreconcilable differences over regulation and agriculture. After lobbing both criticism and tariffs at Europe, the Trump administration tried for a more limited agreement, with similarly unimpressive results.

The Biden administration successfully de-escalated some of those trade fights. But fundamental differences remain in how the US and Europe view the role of government and regulation.

“It’s incredibly complicated, largely because we have markedly different priorities,” said Mr William Alan Reinsch, the Scholl Chair in International Business at the Centre for Strategic and International Studies. “I can see a path but the path involves both sides making concessions that they really don’t want to make.”

Ms Miriam Garcia Ferrer, a European Commission spokeswoman, said the countries were “fully committed to achieving an ambitious outcome” by October.

The EU is seeking a permanent solution to US tariffs and to “re-establish normal and undistorted trans-Atlantic trade” while also driving decarbonisation and addressing the challenge of global steel overproduction, Ms Garcia Ferrer said.

Mr Sam Michel, a spokesman for the US trade representative, said the Biden administration had “been fully committed to these negotiations over the last two years and we are hopeful both sides can reach an agreement that demonstrates the close partnership between the United States and the European Union”.

People close to the talks say the outcome has been particularly disappointing given the close alignment and warm relations between Mr Biden and Dr von der Leyen, and between Ms Tai and her counterpart, Mr Valdis Dombrovskis, the European commissioner for trade.

Ms Tai and Mr Dombrovskis committed in 2023 to meeting every month. Mr Dombrovskis, former prime minister of Latvia, hosted Ms Tai at a seaside dinner in the Latvian capital in June, and she brought him to the White House on July 4 to watch fireworks from the lawn.

US officials initially thought those meetings might mark a turning point for the negotiations. In a trip to Brussels in July, Ms Tai told her counterparts that time was running out and that they needed to get something done.

But that top-level commitment did not fuel momentum at lower levels of the bureaucracy, and progress fizzled as European negotiators left for summer holidays.

The pace of talks has accelerated over the past month, but for a much more limited agreement.

Ms Jennifer Harris, a former senior director for international economics at the National Security Council who played a key role in starting negotiations, expressed optimism that progress could be made in the final days and weeks of negotiations, especially given the upcoming meeting between Mr Biden and Dr von der Leyen.

The talks now need “the kind of swift injection of tailwind that only leaders can provide,” she said. “I don’t think either leader is going to let this thing fail.” NYTIMES