Biden Agenda, Section 232 Reform Hinge on Infrastructure Passage: Policy Expert

But President Biden needs a win on infrastructure if he is to make a big change in steel trade policy palatable to certain local constituents – namely, union-represented steelworkers in swing states like Michigan and Pennsylvania. 

“This (Section 232 and infrastructure) all started out as a domestic problem – and now it’s a global problem. He’s playing chess at a global level right now, which is very tricky,” Kapadia said.

“The larger these deals get between so many different global players, anything can happen. … But right now there is a very clear pathway for the EU (Section) 232 being moderated,” he added.

The Vogel Group is a Washington, D.C.-based bi-partisan lobbying firm.

Infrastructure

Here’s how the Biden administration would most likely like to see things play out, according to Kapadia.

A win on infrastructure would allow Biden to go to U.S. steelmakers and unions and say that he still has their back. Sure, Section 232 might be eased. But a $1-plus trillion infrastructure deal, with $550 billion spent up front, would give them little reason to complain.

Biden’s thinking might be this: “Don’t worry guys. I’m rolling back the EU 232 thing. But I have all these strict quotas on it – and I just gave you $550B in new infrastructure spending … so relax,” Kapadia said.

The president should also be able to make a strong case that a revised trade regime with the EU won’t hurt domestic industry because it will include even stricter provisions that steel used for government-funded infrastructure projects be sourced within the U.S. and, most likely, higher hurdles to getting waivers to those rules.

And it should also be noted that there is support within the U.S. manufacturing community, including in swings states, for easing Section 232 given how many more jobs are tied to steel-consuming industries as compared to steel producing ones, Kapadia said.

The Senate has already passed an infrastructure bill. The House will resume debate on its version on Monday. And the next 48-72 hours could prove pivotal, he said.

Section 232

It’s not entirely clear what shape easing Section 232 on the EU might look like. But it could include a tariff-rate quota, or TRQ, as well as stricter enforcement around other trade issues such as duty circumvention.

A TRQ sets a quota for steel imports and then imposes a tariff on any tons that come in above that quota limit. It’s different from the “absolute” quota now in place under Section 232 on countries such as Brazil and South Korea. An absolute quota means that tonnage above specified quarterly limits must be warehoused until the next quota window opens.

And the United States-Mexico-Canada Agreement (USMCA), the pact that replaced the North American Free Trade Agreement (Nafta), will probably serve as a template too, Kapadia said.

United States Trade Representative (USTR) Katherine Tai, the chief trade negotiator for the U.S., was also the chief negotiator of USMCA. Tai has a thorough understanding not only of the international trade policies and big-picture politics at stake but also of the specific laws and personalities involved. “She was the one who literally wrote the language (on USMCA) … came up with the 232 exemption. That was her. And now she’s leading USTR. I think we can’t ignore that,” Kapadia said.

USMCA was inked after the U.S. agreed to lift Section 232 tariffs, rolled out under former President Donald Trump in 2018, from Canada and Mexico.

When exactly a deal will be announced is also hard to say. But it’s unlikely that there will be any big public announcements at the inaugural meeting of U.S.-EU Trade and Technology Council, which is will take place on Sept. 29 in Pittsburgh, Kapadia said.

At that event will be U.S. Secretary of State Antony Blinken, Commerce Secretary Gina Raimondo, and USTR Tai. Representing the EU will be European Commission Executive Vice Presidents Margrethe Vestager, and Valdis Dombrovskis.

“There is going to be continued quiet dialogue about these things so that people are all on the same page before they do anything public,” Kapadia predicted.

Any public announcements are more likely to happen at future events – such as the COP 26 UN Climate Change Conference taking place from Oct. 31-Nov. 12 in Glasgow, Scotland, he said.

The Big Picture

Timelines aside, easing Section 232 would be a concrete way for Biden to extend an olive branch to the EU – one that would allow EU officials to bring home a win to their domestic constituents in the form of increased export opportunities and a more positive trade relationship with the U.S. Both would have symbolic importance after the trans-Atlantic relationship was severely strained during the Trump years. And restoring U.S. ties with the international community and international organizations is not only something the Biden administration needs from a policy perspective, it’s also something that Biden wants personally.

“He is a guy who wants to work with the UN, the WTO, NATO and other allies to facilitate global objectives. And in many cases, the party on opposite side of those global initiatives is China,” Kapadia said. “To put it plainly, he needs the European Union to acquiesce to a lot of his China policy, but the Europeans are not willing to do that for free.”

Why does the U.S. need the EU so much now? The Biden administration has effectively opened a “10-front” war against China on a host of issues – human rights, climate change, Hong Kong autonomy, currency manipulation, forced labor, national security, technology. “The list goes on and on and on,” Kapadia said. “Basically, every government agency right now has a war against China.”

But the U.S. can’t accomplish its goals alone. “It’s very similar to in a schoolyard – one student going up against a bully, it just attracts too much attention on that one student. And you need other people involved to call out this bully,” he said.

The problem: Relations with the EU were already rocky after the Trump administration singled out the trade bloc with “protectionist” trade measures such as Section 232. And recent events – think the abrupt withdrawal of U.S. forces from Afghanistan and the ruckus with France over a submarine supply agreement with Australia – have left Biden’s standing in the global community at a low point. Biden’s credibility might be further damaged if his administration is unable to move forward on a signature issue such as infrastructure, Kapadia said.

Close observers of U.S. politics might know that the Democrats control the House and Senate by the narrowest of margins. But to an outsider, it might not be obvious why a party that has the White House as well as majorities of both houses of Congress can’t advance its agenda. That makes the next few days critical – not only for Biden’s domestic agenda but also for Section 232 and the U.S. pivot toward Asia.

“If he doesn’t get the infrastructure deal done, then he goes to Europe in November toothless,” Kapadia said. That’s especially true given that the party in power typically faces an uphill battle in retaining congressional seats in the mid-term election following a presidential contest.

In other words, from a European perspective, “Are we really going to negotiate with you when technically we know that you might be a lame duck starting in about five minutes?” he asked.

By Michael Cowden, Michael@SteelMarketUpdate.com