Steel Is Back

Why a new U.S.-EU trade arrangement about steel is surprisingly important

A worker in a protective suit oversees molten iron flowing from a blast furnace at the ThyssenKrupp steel mill in Duisburg, Germany.
Lukas Schulze / Getty

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If pith-helmeted archaeologists were to name our era like they name those of our ancestors—the Stone Age, the Bronze Age, etc.—they might very well dub ours the Steel Age. Steel is ubiquitous: It’s in cars, appliances, buildings, roads, infrastructure, and weapons, an essential input into virtually every large manufactured product. “As you go through your day, you pass steel every few feet,” Todd Tucker, the director of governance studies at the Roosevelt Institute, a progressive think tank, told me. “It’s sort of what chips are for the tech sector.”

Steel is also a major part of one of the world’s toughest climate problems. Although technologies now exist to generate electricity, or move people from place to place, without emitting climate pollution, many problems with heavy industry remain unsolved. Iron and steel production alone were responsible for more than 7 percent of annual greenhouse-gas emissions worldwide in 2016.

Yet in a momentous week for climate-change policy—in which Biden threw down a new framework for $555 billion of climate spending, the Supreme Court accepted a case that could severely restrict the Environmental Protection Agency, and the annual United Nations climate conference commenced in Glasgow, Scotland—it remains striking that one of the most significant news items, so far, concerned steel.

On Sunday, at a meeting of the Group of 20 countries, Biden announced that the U.S. and the EU were each dropping their steel and aluminum tariffs immediately, and had agreed to what they called “the world’s first carbon-based sectoral arrangement.”

This new arrangement—which will be negotiated in full over the next two to three years—will lead both countries to prefer trade in lower-carbon steel and perhaps, eventually, to close their borders to so-called dirty steel. The U.S. and EU will also agree to a shared methodology for counting the carbon emissions “embodied” in steel. And because the tariffs have been lowered, the arrangement should help lower prices for American consumers.

The arrangement represents a tacit recognition from Europe that American steel has lower emissions than steel from elsewhere in the world. Most American steel producers now use electric-arc furnaces, which allow for scrap metal to be recycled into new material, skipping carbon-intensive steps of the refining process, Tucker said.

This advantage led to perhaps the most important part of the deal: It has the full support of the American steel industry and its union. The Biden administration and Europe found a way to spin what I’ve called “the green vortex” faster, creating new coalitions that advance their shared economic, geopolitical, and environmental goals. The deal shows that, at least in this one sector, America and Europe can work together despite their—how to put it?—distinct approaches to climate politics.

For more than a decade, the EU has operated the world’s most robust carbon-trading market, in which companies bid on the right to emit climate pollution. Since 2017, the price of pollution has doubled, then doubled again, then doubled yet again. European manufacturers—including ArcelorMittal, one of its largest steelmakers—began to beg the EU to level the playing field against foreign competition, and over the summer, the EU moved forward with long-standing plans for a carbon border tax on cement, fertilizer, electricity, iron, steel, and aluminum.

This presented a major problem for the United States. Our approach to climate policy has been driven far more by standards and subsidies than by textbook carbon taxes; the nationwide patchwork of state laws and local electrical grids would have made it nearly impossible to calculate a fair or accurate carbon tax (assuming that EU technocrats even tried). John Kerry, Biden’s special envoy for climate, warned the EU that a carbon border tax should be used only as a “last resort.”

The conflict seemed to threaten a schism. At worst, Atlanticists worried that the EU might unify its market (or at least harmonize its border tax) with the world’s other enormous carbon market: China. As the historian Adam Tooze pointed out, China, not America, is the EU’s largest trading partner, and a Sino-European climate pact could look more attractive to Brussels than a partnership with the insular, polarized, and carbon-choked United States. The steel arrangement, if not foreclosing that possibility, at least forestalls it.

The fact that steel is so essential to every other industrial process means that the global steel market is very weird. (If a market even exists at all: “Steel has never been a free market,” Tucker told me.) Many countries nurture their steel industry for economic-security reasons, which has led to perennial overcapacity. China, which produces half the world’s steel, may overproduce tens of millions of tons a year more than are needed. (Chinese steel is responsible for 60 percent of the global steel industry’s emissions, and about 4 percent of the world’s total annual carbon pollution.) The U.S., Europe, and Japan had been “talking about” the problem of Chinese steel overcapacity for decades, Tucker said, but did not act until President Donald Trump unilaterally raised steel tariffs on all imported steel in 2018. The EU imposed its own tariffs soon after. Ironically, those tariffs gave the U.S. and EU leverage to negotiate this “green steel deal.”

Under the new arrangement, the U.S. will import about 1 million tons of steel from the EU every year, according to Roy Houseman, a lobbyist for the United Steelworkers. Any imported steel must be “melted and poured” in Europe, which means that it can’t simply be reconstituted steel from China. Although the U.S. doesn’t export much steel to Europe today, the arrangement allows for the possibility that the EU could be a customer for clean American steel in the future.

What may be most important about the deal is its agreement that the U.S. and EU will decide on a shared way to measure the carbon pollution embodied in steel. This bridges an important intellectual gap. Historically, the American and European elite have conceived of climate change as a global free-rider problem: No country could make a dent in climate change alone, they believed, so no individual country had an incentive to do anything. To resolve that dilemma, the Nobel Prize–winning economist William Nordhaus called for a global carbon tax among willing nations along with a “climate club” that levies the tax on imports and exports.

Europe has adopted many of Nordhaus’s prescriptions wholesale. The United States has not. Congress has never managed to put a price on carbon or mandate explicit carbon-pollution reductions. So, lately, a new way of thinking about climate change has gained popularity. The political scientists Michaël Aklin and Matto Mildenberger have argued that climate change is not a free-rider problem at all, but actually one of “distributive conflict.” As I summarized their view in April:

The challenge of global climate action isn’t that other people will benefit from your emissions cuts; it’s that many interests actively oppose decarbonization. The key to passing climate policy is stitching together a coalition that will support and sustain decarbonization.

In a way, the steel deal unifies these two approaches. From one side, it’s a Nordhausian climate club, through which Europe can punish recalcitrant countries for carbon-intensive manufacturing. From the other, it’s a coalitional negotiation, with pro-decarbonization leaders in one country giving a leg up to supportive leaders in another—and recruiting the steel industry all the while. The U.S.-EU arrangement also defies Nordhaus, who always focused on carbon prices, in favor of focusing on the core problem: the actual carbon emissions going into the sky.

And it sets out a pattern for how the U.S., the EU, and other democracies can collaborate on the profoundly material crises that the world faces—a notion not so distant from the hope that unpins the European Union itself. In 1952, when France, West Germany, Italy, and the Benelux countries established the European Coal and Steel Community, Robert Schumann, then the French foreign minister, said that the market’s goal was to make war between France and Germany not only unimaginable, but materially impossible. The flywheel worked, spinning up a greater and greater integration, and the Coal and Steel Community eventually evolved into the EU. In our darker and more worrying time, such hope may no longer be imaginable. But integration has prevailed, and the rupture has been delayed, at least for now.