TRUCE OR PARTNERSHIP?

US President Joe Biden has received several time bombs from his predecessor Donald Trump. One of them is the trade war with the EU, which began in 2018 after Washington imposed tariffs on steel and aluminium imports from Europe. Then, the EU imposed retaliatory tariffs on virtually all US imports, from jeans to whiskey to Harley Davidson motorbikes, and filed a complaint with the World Trade Organisation (WTO).

After the 2020 elections, the EU hoped that Biden would not hesitate to repeal Trump's tariffs. After all, on the very first day of his presidency, Biden returned the US to the Paris Climate Accord, which it left under the Trump administration.

However, Biden was in no hurry, as he did not want to damage relations with the US steel industry, which is an influential force in the key election states. The European Commission (EC) stated that it would not cancel retaliatory tariffs or withdraw its WTO lawsuit until the US cancels its tariffs first.

The stalemate continued until the autumn of 2021, when President Biden and EC President Ursula von der Leyen announced a truce during the G20 summit in Rome. The US temporarily suspended tariffs on imports of European steel and aluminium for two years.

The sides also agreed to adopt a common approach within the next two years to tackle environmentally harmful production and the global overcapacity of steelmaking, which is driving American and European companies into bankruptcy. As a result, these ideas resulted in a project to create the Global Agreement on Sustainable Steel and Aluminium (GASSA). Other developed countries have also expressed their desire to join the deal.

While Trump's tariffs taxed all non-US steel, hitting allies including the EU and Japan, Biden's plan is mainly aimed at reducing the negative impact of cheap Chinese steel. And while Trump's argument was that steel imports threatened US national security, Biden's brainchild focuses on protecting both the US market and that of its allies. In addition, GASSA, also known as the "green steel club," also aims to fight climate change.

The agreement is essentially a joint tariff area between countries that agree to common environmental standards and limits on government subsidies and overproduction. If adopted, it would impose duties on steel and aluminium imports from non-market economies, including China.

Restrictions on dirty steel have bipartisan support in the US. This means that they are unlikely to be lifted even if the Washington administration changes. This aspect of the deal is particularly important as Washington's credibility on climate change has been severely diminished in recent years.

The US withdrawal from the Paris Accord under Trump and earlier efforts by the Obama administration to exempt US airlines from fees under the European Emissions Trading System have decreased confidence in Washington's commitments on climate. Biden takes a different view of the issue.

It was expected that at least an interim agreement on GASSA would be reached at the US-EU summit in Washington on October 20, 2023 also attended by the presidents of European Council and European Commission, Charles Michel and Ursula von der Leyen. This would put an end to the transatlantic tariff war unleashed under the former US president.

However, the differences proved irreconcilable, and as a result there was nothing to announce. Therefore, the joint statement adopted at the end of the summit focused on geopolitics and made virtually no mention of GASSA, except the following: "Throughout these two years, we have made substantial progress to identify the sources of non-market excess capacity. We have also achieved a better understanding of the tools to address the emissions intensity of the steel and aluminum industries. We look forward to continuing to make progress on these important objectives in the next two months."

But, apparently, it is very unlikely that two months will be enough if two years were not enough to come to a mutual agreement.

Many reasons why

There are three main reasons why a decision on the green steel club is delayed. Firstly, Brussels is already implementing its own complex tariff-based Carbon Boundary Adjustment Mechanism. Secondly, Washington and Brussels have very different views on measures against China. They both agree that China is the largest source of overcapacity in global steel production. But many European countries are hesitant to leave the lucrative Chinese market, especially Germany, which has close trade links with China. "Europeans have already suffered a deep economic trauma because of the end of co-operation with Russia. They can't imagine cutting themselves off from China," says a former official of the US State Department responsible for Europe and Eurasian affairs.

In fact, with the intensifying US pressure on Europe and alarming intel data on China, it is possible that the US strategy become productive. At the last World Economic Forum in Davos in January, Ursula von der Leyen said the EU wanted to de-risk but not disengage from China. In recent weeks, however, EU officials have signalled that the bloc was ready to impose sanctions on China if Beijing crosses a red line and supplies weapons to Russia.

The third reason is the subsidies to US companies ($370b) provided under the so-called climate and clean energy law, or the Inflation Reduction Act, passed last summer by the Biden administration.

The law gives consumers a tax break for buying electric cars assembled in North America. The EU is trying to gain the same access to incentives that the US offers to Canada and Mexico, its free trade partners.

There is another reason behind the slow pace of the US-EU talks. Some European capitals feel that Ursula von der Leyen's cabinet does not take their views into account during the talks. Moreover, as one diplomat told Politico, "the thinking of von der Leyen's cabinet seems to be heavily US-centric rather than EU-centric."

The very uneasy personal relationship between the two heads of the EU, Charles Michel and Ursula von der Leyen, also hampers the EU's co-ordinated international activities. These differences were also evident in Washington: Michel held a bilateral meeting with Biden in the Oval Office before the talks, while von der Leyen joined Biden for a walk in the Rose Garden afterwards. EU High Representative for Foreign Affairs and Security Policy Josep Borrell also travelled to Washington, although his visit had not been scheduled at all.

All these demonstrate the growing problem the EU is facing on the international arena: the lack of identity to determine the European foreign policy.

Although Michel is formally responsible for representing the EU on the world stage, it is von der Leyen who has closer relations with the Biden administration. These ties strengthened after Russia's invasion of Ukraine in 2022, when von der Leyen and her team worked closely with the White House to coordinate sanctions. She has since had repeated contacts with Biden, while Michel, who has led the European Council for four years, had his first conversation with the US president on October 20.

Sofagate

Relations between Michel and von der Leyen have deteriorated since 2019, when both presidents took the office. Heads of the two institutions do not want to communicate with each other, even making obstacles to each other at meetings with foreign dignitaries.

At the G20 summit last year, Michel's dialogue with Chinese leader Xi Jinping was crucial for the EU, but von der Leyen was not invited. Why? Because the latter refused to allow Michel to attend the meeting with Indian Prime Minister Narendra Modi earlier at the G7.

Michel disputes von der Leyen's position on almost any foreign policy issue, be it the Middle Eastern crisis or relations with China. Von der Leyen and Michel do not communicate even in the run-up to European Council summits, where important strategic and urgent tasks are decided. Representatives of countries and international organisations are often confused about who should they communicate with in the EU...

Such a dysfunctional partnership not only affects the EU's legislative and policy agenda, which depends on a delicate inter-institutional balance, but also threatens to undermine the EU's credibility in the world.

In the beginning, relations were more or less friendly. It all fell apart in April 2021, when both leaders travelled to Türkiye to meet with President Recep Tayyip Erdogan. Cameras captured von der Leyen's shocked reaction when Michel quickly took the only chair next to the Turkish president, leaving her sitting on a sofa opposite the Turkish foreign minister. Von der Leyen, the first woman to hold the EU presidential post, later told the European Parliament that the incident was a "pain" for her and accused Michel of sexism.

The incident, dubbed Sofagate, went viral, while mutual accusations have further deteriorated the already worse relationship between the two leaders.

Only truce

Both the US and the EU are likely to extend the truce at least until next elections in November, where Joe Biden needs to win in the steel states.

Officials on both sides of the Atlantic say that despite trade tensions, the bond between Brussels and Washington is closer than ever. But with mutual trade tensions persisting and Biden's trade policy still having much in common with his predecessor's "America First" approach, no observer expected tangible results from the talks.

All this does not inspire confidence in the reality of joint plans between the two leading economies of the world, given the current mess in the EU leadership, while the results of the upcoming US presidential election are not yet predictable.