EU, US to form metals alliance to counterbalance Chinese overcapacity

The European Union and United States will develop a metals alliance to mitigate the impact of subsidised Chinese production on global markets as part of their trade deal, European Trade Commissioner Maros Sefcovic said on Monday. 

Sefcovic said that, in their hours of discussions to reach an agreement, U.S. officials came to realise the U.S. and EU steel sectors faced the same problem. As such, EU steel and aluminium makers will be granted a quota system with minimal or zero tariffs to replace U.S. President Donald Trump's 50% import tariffs. The system is yet to be finalised.

"The agreement is clear prospect of joint action on steel, aluminium, copper and the derivatives in what I'd like to call a metals alliance, effectively creating a joint ring-fence around our respective economies through tariff rate quotas at historic levels with preferential treatment," Sefcovic told a press conference. 

"It became very, very clear that if it comes to steel and metals we are not each other's problem." he continued.

For Europe, finding a way to remove U.S. steel tariffs has become even more urgent as its smelters are losing scrap supplies to U.S. plants. Scrap is a major input in smelters because it is sold at a discount to primary metal and is less energy-intensive to turn into a finished product. 

The possible alliance and quota system reveal growing momentum to counter Chinese output. At the Group of Seven (G7) nations finance meeting in May, officials agreed to tackle "excessive imbalances" in the global economy without explicitly naming China.

"I have to say that despite the strenuous efforts of my colleagues and myself and several long meetings with my Chinese counterparts, unfortunately, the list of the accumulated issues on the table will not get shorter, but just grew longer," Sefcovic said, referring to last week's EU-China Summit.

"Clearly the issue is overcapacity. The issue is linked with what we perceive as illegal subsidies."