Ambassadors Say Section 232 Tariffs Must Go, but Chinese Overcapacity Needs Addressing

Ambassadors from the United Kingdom, Brazil, the European Union and Australia discussed on a Feb. 8 panel how to improve trading relationships with the U.S. and deal with the challenge China poses to the international trading system but had no insights into how to make breakthroughs on either.

Former U.S. trade representative Susan Schwab, who moderated the Washington International Trade Association panel, told EU Ambassador Stavros Lambrinidis that oversupply of steel and aluminum is what led to Section 232 tariffs on allies, and asked how the EU and the U.S. could approach the problem with China.

“Yes, you're right, China is the real problem,” he replied. He said Chinese overcapacity creates issues for EU producers as well. He said the U.S. and the EU are already discussing how to manage it through the trilateral discussion with Japan on industrial subsidies.

Australia is one of the few countries not subject to Section 232 tariffs or quotas. Ambassador Arthur Sinodinos said he doesn't believe 232 tariffs will be sorted out until the structural issues of oversupply are resolved. China has punished Australia over political disagreements, under the guise of sanitary and phytosanitary protections on Australian coal, barley and wine exports. “The important thing is for nations not to be seen as capable of being picked off on their own,” he said. “There’s a calculus of cost and benefits for them,” he said, referring to the Chinese government. “We have to change the calculus of costs and benefits.” He added that “there’s no perfect solution to any of this,” but said solidarity and democracies coordinating on international bodies' appointments will go a long way.

Brazilian Ambassador Nestor Forster agreed with the other ambassadors that Section 232 is hurting workers globally rather than helping U.S. industrial workers. Brazil's steel is controlled by quotas. Forster said the U.S. and Brazilian steel industries are integrated, with Brazilian steel mills using U.S. coal, then sending semi-finished product to the U.S., where it undergoes further processing. The 232 restrictions hurt U.S. companies and workers, he said.

While the U.K. shares the EU's concerns on the Section 232 tariffs and also wants to resolve the Boeing-Airbus case that led to tariffs on both sides, it sees the possibility of trade liberalization with the U.S. because negotiations for a free trade agreement have been extensive.

Karen Pierce, the British ambassador to Washington, said that while she recognizes that the Biden administration has a very domestic focus, “I would argue the FTA itself assists COVID recovery.” Pierce said Democrats and Republicans in Congress and governors from both parties have “a lot of enthusiasm for a free trade deal” with the U.K. “We would like to conclude this. We made a good amount of progress with the previous administration,” she said, though she acknowledged bridging the divide on agriculture “is always difficult.”

Pierce and Lambrinidis were asked how the U.S. and Europe can settle the Airbus-Boeing dispute, which has lingered for 17 years, within six months, as Lambrinidis has proposed. Pierce said, “Everyone says they want to resolve this issue but nobody seems quite able to take that first step.” The U.K. lifted its tariffs over Boeing subsidies as a goodwill gesture, she said.

“You know why it’s easier now?” Lambrinidis said. “It’s not that big of a mystery of what needs to be done.” He said no industry has suffered more than airlines during the pandemic, so lifting tariffs on civil aircraft would be a great signal to airlines that governments have their interests at heart. He pointed to a need for subsidies as aircraft manufacturers transition to cleaner fuel, and he said the U.S. and Europe must agree how to do that without favoring either of the two major manufacturers.

The ambassadors were asked about digital services taxes, an irritant for the Americans. Pierce said the U.K. has chosen not to collect its DST to encourage the U.S. to negotiate at the Organization for Economic Cooperation and Development on the matter.

The Trump administration was less willing to come to the OECD to negotiate, Pierce said. Lambrinidis said he is encouraged that Treasury Secretary Janet Yellen expressed willingness to return to the OECD discussions during her confirmation hearing.

“Digital companies have to pay more tax -- it’s just the fair and the right thing to do,” he said.