Steelmakers Skeptical Global Arrangement Can Be Finalized

Dempsey said the two sides are far apart because the EU is focused on building its carbon border adjustment mechanism, which is designed to force steel exporters who don't pay a price on carbon to pay one equivalent to the EU cap and trade program before their products enter the EU.

The U.S. wants to measure the average carbon intensity of domestic products and then calculate the difference between that and the imports. The U.S. has lower carbon intensity than Europe, partly because it has more electric arc furnaces and partly because, even where blast furnaces are in use, they run on natural gas, not coal. Cleveland Cliffs CEO Lourenco Goncalves also said that U.S. steelmaking will transition to hydrogen sooner than Europe will.

"So we have different structural problems," Dempsey said. "I think we agree on the principle that there needs to be a trade mechanism that discourages the production of much dirtier steel."

The U.S. trade representative and her EU counterpart have a self-imposed deadline of October; European steel is currently subject to a system of tariff rate quotas, and they will expire at the end of 2023, and, unless there is another proclamation or an agreement, 25% tariffs would return in 2024. Dempsey declined to say if the group wants the return of tariffs.

Dempsey also did not say if AISI would support an end to TRQs if the Europeans and Americans agree on a global arrangement on steel to tackle carbon intensity and overcapacity. The EU says tariffs or quotas on its steel must be lifted as part of a deal, if the steel meets the green standard.

"We will have to see just how effective a system they come up with, if they can deal with non-market excess capacity." He said if their solution is not comparable to the TRQs, then the TRQs should remain in place.

Goncalves said the domestic steel industry is a strong proponent of a U.S. carbon border tax, but says it should be pegged to carbon intensity, not carbon prices. If you want to sell in the U.S., "you need to be below or at our level," he said.

Goncalves said the U.S. is the only country that has less capacity than it has consumption, and that major multinationals such as ArcelorMittal are still adding capacity, even though there is too much. India is building capacity, he said, "Everyone wants to build capacity," he said.

Mexico, Canada and Australia are the only countries in the world that can export steel and aluminum into the U.S. with no tariffs or quotas, and Goncalves said that as a result, Mexico has become "the new transshipment capital of the world." He said Asian steel that used to be imported through U.S. ports now lands in Mexico. He added: "Now they eat a taco, and come to the United States. We are not going to allow that to happen."

The USMCA made it harder to import semi-finished steel products into any of the three countries and then produce it into automotive inputs, as it requires 70% of the metal in the car to be melted and poured in the region.

Goncalves said that just that provision will increase U.S. steel consumption by 4 million tons annually. His firm supplies more than half the steel for automotive buyers in the U.S.

Goncalves, whose company is the only domestic producer of electrical steel, pushed back against a reporter's question on why the steel industry still needs 25% tariffs on imported steel from most countries if the domestic demand for steel is climbing. "They are not for protection, they are for national security. If we didn’t have [Section] 232 right now, we would not be producing electrical steel. It would be imported from Taiwan or South Korea. You don’t tie your destiny to a country in the crossroads of a war," he said.

Dempsey agreed, saying that Section 232 was needed because excess global supply led to repeated import surges, and he said that there is 632 million tons of excess capacity still, more than all the steel the U.S. produces.