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Welcome to Trade Secrets. Today I’m standing in for Alan. Brussels and Washington are increasingly coming under pressure to reach an agreement on a climate-related deal for steel and aluminium. There is some common ground, however: both sides do at least agree that climate change needs to be managed. Charted waters shows how Russia is earning far more from crude oil sales to India than previously recognised by exploiting a loophole in the oil price-cap regime.
Get in touch. I’m at aime.williams@ft.com.
Hope of a compromise
Among Joe Biden’s early measures aimed at keeping the peace with Europe — back before the Inflation Reduction Act inflamed things again — was the suspending of the Trump-era tariffs on steel and aluminium.
In the place of national security tariffs levied on European steel and aluminium came a set of import quotas, and some talks aimed at creating a permanent solution to trade in low-carbon steel and aluminium while slapping levies on any so-called dirty producers. This is supposed to tackle overproduction while also lowering carbon emissions.
The issue is that despite setting themselves a firm deadline of October this year to seal a deal, the two sides have made virtually no progress. Until now, Trade Secrets has been told, where some amount of panic has begun to set in.
The Americans have so far been frustrated with the EU’s insistence on its own way of doing things, judging the European approach as stodgy and plod-footed. We’ve seen this with the IRA, too, where Washington generally acted with minimal sympathy towards European complaints that the generous tax subsidies being handed out to companies building on US soil broke World Trade Organization rules.
On that legislation, and again in the steel and aluminium talks, the Europeans see the Americans as cavalier and self-serving. The guardrails of the global trading system are there in black and white, they contend. Washington appears to argue that they are, in fact, grey.
Alan has covered the bulk of the current negotiating positions over the steel and ally talks here, so I won’t rehash them.
But what is new is an insistence from Washington that the deadline will not be extended. The talks now have very little time to conclude — especially when taking into account the August lull, when both Washington and Brussels are quiet.
EU trade commissioner Valdis Dombrovskis has declined to speculate on whether the two sides could prolong their truce, although it’s hoped in Brussels that if enough serious progress is made, an extension could be struck to work through the final details.
One point of hope that a settlement could be reached over the next two to three months is that the two sides do agree on one thing: that climate change needs to be managed.
As Alan has discussed, David Kleimann of the Bruegel think-tank in Brussels, and formerly of Georgetown University in Washington, makes the point that the US — with its prevalent relatively low-carbon intensity, energy-efficient electric arc furnaces, is creating a “green smokescreen” to protect its higher-intensity steel plants in the electorally wobbly swing-y states of Ohio, Pennsylvania and Michigan.
This is, at first glance, a case of the Biden administration pitting electoral politics against saving the planet. But the two things are not always in competition in the long run. Carbon-heavy blast furnaces emit damaging greenhouse gases more than their energy-efficient electric arc furnace counterparts — true. But winning the states of Ohio, Pennsylvania and Michigan could mean Biden holding the White House. The climate maths may look more favourable under a continued Democratic presidency than it would under a Republican presidency — especially if the full force of the IRA’s tax credits are allowed to bed in.
The same trade-off can be seen in the US domestic politics of the Mountain Valley Pipeline — climate types hate that the White House has given a green light to this project and helped it leapfrog court challenge. But again, the Biden administration needs Democratic senator Joe Manchin to hold West Virginia so that it can stay in power. The fossil fuel pipeline, in the short term, is the trade-off made.
Negotiating your trade agreements according to your domestic political preferences is, of course, totally normal behaviour. But in the case of talks with the Europeans, the climate goals — to reduce global carbon emissions and get at least somewhere close to the Paris Agreement targets — are the same.
This means there could be some hope of an agreement — even if, as Alan writes, top European officials may be totally averse to prioritising their transatlantic friendship over global trade rules. They have until October — we’ll see.
Charted waters
Inflated shipping costs are enabling Russian companies to earn far more from crude oil sales to India than was previously recognised, FT analysis has revealed.
The principle of the price cap is that oil needs to stay below $60 a barrel (for crude). But Russian sellers now organise the freight when sending to India, so they’ve got a lever to extract more cash. Freight isn’t controlled by the price cap — a loophole that enables Russian companies to charge a significant amount well in excess of the actual cost of shipping.
An FT analysis of ships running directly from Russia’s Baltic ports to India suggests that this overcharging, combined with fees earned from shipping the oil on Russia-linked vessels, may have been worth $1.2bn in the three months to July.
Trade links
Zambia’s president Hakainde Hichilema has set a target to more than triple the country’s copper production from about 800,000 tonnes a year to more than 3mn by 2032. But the mission will require significant investment and improved infrastructure — to be addressed even while Zambia is still in talks to finish the restructuring of its $13bn external debt. The FT’s Joseph Cotterill explores why the government is attempting a copper revival.
The US is embroiled in a spat about whaling with Japan that threatens its main trade initiative in Asia just as President Joe Biden prepares to host his Japanese and South Korean counterparts for a historic trilateral summit.
Clarkson, which sells sea freight space, predicts a rise in shipping rates this year due to a winning combination of energy insecurity, green transition and squeezed shipbuilding capacity. Lex assesses whether the winds are in Clarkson’s favour in its Populi column.
Trade Secrets is edited by Georgina Quach today.
