How Brussels can precision-tune its instruments of trade conflict

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Welcome to Trade Secrets. Nice scoop here by my Brussels colleagues that the EU is thinking of rescuing its solar panel industry from a surge in cheap Chinese imports — either with antidumping duties or official bailouts of domestic producers. For those of you thinking you’ve heard all this before, you have: it was about a decade ago, when EU-China and US-China solar trade disputes were a daily concern. Today I look at the complex judgments involved when the EU goes after China and the US with its newly expanded array of weapons to combat unfair trade. One interesting issue: the EU is considering reviving a dormant WTO case against the US on steel, just to make a point. Charted waters is on the global oil price.

The transatlantic steel scrap isn’t over yet

The EU has famously been toughening up its enforcement game in recent years. It’s added new unilateral, I mean to say autonomous, legal tools — the anti-coercion instrument against trade bullies, an amended enforcement regulation against WTO scofflaws and the foreign subsidies regulation against unfair competitors in the Single Market. And it’s made existing instruments such as antidumping and anti-subsidy duties more flexible.

The bloc’s got the weaponry, but it’s a tricky commercial and diplomatic judgment working out what to do with it. We’ll look at its dealings with the US first, given the possibility the EU will escalate a steel dispute by restarting WTO litigation, probably in the coming weeks. 

To recap: in December last year the EU and US agreed to extend a sort-of moratorium in their argy-bargy over steel and aluminium until March 2025. The moratorium dates from 2021, when Washington suspended but did not abolish its Donald Trump-era tariffs supposedly imposed to protect national security. It put a quota system in place instead, and the EU accordingly lifted its retaliatory duties. The 2025 end date is obviously to avoid bashing the US steel industry during the presidential election so the EU can’t be accused of costing Joe Biden the steel states of Ohio and Pennsylvania.

Brussels remains pretty annoyed, though. EU officials say they could have fixed the dispute for good last year by signing up to a US plan to bash China for its steelmaking overcapacity, but Washington refused permanently to abolish the national security tariffs as part of the deal. Brussels wants judiciously to signal irritation. Hence, it’s considering whether to restart a separate WTO case against said steel tariffs that it suspended as part of the moratorium in 2021.

It’s a tricky call and could get a bit tasty. Assuming the EU restarts and wins the case, the US could then appeal “into the void”, that is, to the non-functioning WTO Appellate Body it crippled by refusing to appoint new judges. But the EU could then deploy its enforcement regulation to impose retaliatory tariffs on the US anyway. In practice, even if the legal bit got done before November, the EU would also suspend that retaliation until March next year. Still, restarting the case would be a substantive move in a finely balanced game. It would mean loading the gun, but not firing it yet: standing up for itself without risking tipping Ohio to Trump. Watch this space for developments.

Chinese tensions come in several shades of green

The EU’s issues with China are broader and have the potential to expand massively if Beijing shifts back to a full-on export-oriented growth model. There are currently three main areas of EU-China tension with green tech — electric vehicles, solar panels and windpower equipment. Each has its own issues and requires its own solution.

Brussels is, of course, already conducting an investigation into Chinese EV subsidies. As I’ve noted before, this is a moderate pre-emptive strike at the issue while Chinese penetration of the EU market is still fairly low. It will probably come up with modest tariffs of 10-15 per cent — an attempt to give European producers time to get up to speed but not provoking retaliation against German carmakers in China.

In the solar sector, as the FT story says, Brussels has to balance protecting the very few European manufacturers left against the urgent need for more cheap panels to hit its renewable energy targets. The EU might well go for directly subsidising the rump of the EU solar industry than blocking imports.

As for windpower, the European wind industry is actually doing relatively OK in the home market. Its main issue is with Chinese competition in third markets abroad, especially elsewhere in Asia. So the European Commission’s role there is about export promotion and enforcing market access.

As it happens, there’s been another development that shows the importance of resilience with the use of legal instruments. Last week the EU formally asked to suspend the WTO case it brought against China for allegedly attempting to use trade restrictions to bully Lithuania out of increasing the diplomatic status it afforded Taiwan. Why? Because China, once it saw that its actions were having no effect, backed away from them. The EU’s shiny new anti-coercion instrument wasn’t needed. Similar happened with Australia. The lesson is clear: if your economy is strong and flexible enough, you can stand up to China without resorting to the law.

Charted waters

One dog that hasn’t yet barked, or not very loudly, as a result of the attacks in the Red Sea: global oil prices. Despite the escalation of the past couple of weeks and the Houthis’ attack on an oil tanker on Friday, markets are still well short of pricing in a serious disruption to oil supply as a result of wider tensions in the Middle East.

Trade links

The Washington Post reports that Donald Trump is planning a dramatic escalation of his trade war on China.

A great piece by the MIT Technology Review traces exactly how nickel from a single mine going through the US supply chain collects Inflation Reduction Act subsidies.

A thaw in global bond markets means the threat of widespread debt distress among low and middle-income countries is diminishing.

John Springford of the Centre for European Reform solves two paradoxes about how the UK’s trade performance apparently hasn’t suffered from Brexit the way you might have predicted.

Germany’s new law on corporate due diligence in supply chains is attracting political opposition.

The EU has announced a bunch of plans in its campaign to promote economic security.

Trade Secrets is edited by Jonathan Moules