EU adopts rebalancing measures in reaction to US steel and aluminum tariffs

With the EU introducing increased import duties on select US products, companies involved in international supply chains are facing increased cost and complexity. EY recommends its clients to act quickly to manage the burden of additional tariffs. Authors: Kaisa Miller, Elin Meier

Steelworker Cutting Steel

 The EU Commission has announced the introduction of increased import duties of 10 and 25 percent respectively on selected US products, with immediate effect (valid as of June 22). It is further proposed that even higher rate increases should be introduced at a later stage. The measures are a reaction to the punitive tariffs introduced by the USA in March on steel and aluminum products. The EU list includes steel and aluminum products, but also agricultural goods and other products (e.g. yachts, jeans, bourbon whiskey etc.). The tariffs are expected to hit an estimated US export volume of 2.8 billion euros according to Economie Suisse.

Although the immediate consequences for Swiss businesses and consumers should be limited, potential increases in indirect cost, impacting both exports as well as imports can nonetheless be expected.

The basis for the increased duty rates is the Implementing Regulation 2018/866 of 20 June 2018, which is based on the EU Communication to the WTO of 18 May 2018. With the US introducing punitive tariffs on steel and aluminium products being imported from the EU, as well as Canada, China and Mexico, the EU is now introducing rebalancing measures, as it is reluctantly pulled into a trade war.

It is evident that the tariffs will have an impact on US exports to the EU. For Switzerland, the effects are likely to be more subtle at first, as Switzerland does not have a trade agreement with the US, nor does Switzerland have a history of introducing punitive tariffs. In the long term, and particularly in international supply chains, the trade war will inevitably have an impact on Swiss businesses as well.

Impact on Swiss exports
Along with various other trading partners, Switzerland has applied to the USA to suspend the introduced trade tariffs. The Swiss request for suspension has however not been addressed. As a result, Swiss steel and aluminium exports to the USA continue to be subject to punitive tariffs of 10 and 25 percent respectively. Economie Suisse reports that exports by Swiss suppliers to the American automotive industry alone currently amount to around CHF 300 million. The tariffs imposed by the US thus impact the cost of goods exported by Swiss suppliers to the USA, and could potentially impact the volume of exports in the long run. Swiss companies could further be negatively affected by the increasing tension in trade relations between the USA and the EU. If for example exports by European car manufacturers to the USA drop as a result of the punitive tariffs, Swiss suppliers are also likely to lose orders.

Impact on Swiss imports
Although the European tariff increases should have no immediate impact on direct imports into Switzerland, the cost of sourcing products of US origin via e.g. the EU will increase significantly. Furthermore, it seems inevitable that international supply chains will be impacted by the escalating trade war in one way or another. Companies must now consider options such as sourcing goods from other suppliers or other countries, or relocating part of their production, in order to mitigate the long-term impact of duty rate increases. In the short term, it seems probable that end consumers in Switzerland, and other directly or indirectly affected countries will suffer the cost.