US struggles to strike a deal with the EU on steel and aluminium

The EU seeks to balance protecting its domestic industries with geopolitical priorities

The US was dealt an unexpected blow last week when it failed to reach an agreement with the EU to join its so-called ‘Green Steel Club’. The club, conceived by the Biden administration last year, would hypothetically seek to establish a tariff regime across a number of economies that targets the import of steel and aluminium. The initiative aims to level the playing field for the EU and US’ metal manufacturing industries which are seen as being at a disadvantage to cheap and carbon-intensive Chinese imports. Were the US to reach a deal with the EU, it would abolish Trump-era tariffs on imports of EU steel and aluminium which have since October 2021 been suspended but not eliminated.

The EU is wary that its membership to the US’ tariff club could have significant downsides. For instance, it is concerned that it may add even further cost pressures to its auto industry. While the EU’s imports of Chinese steel are minimal, China accounts for around half of the world’s aluminium supply. This comes at a time when the EU’s auto industry is already facing intense competition from China’s booming EV production and dominance of EV battery minerals such as cobalt, graphite and nickel. China’s announcement last week that it will effectively ban the export of graphite from December is likely to increase Europe’s EV manufacturing costs further.

The EU is also being careful not to compromise on hard-fought efforts to implement the Carbon Border Adjustment Mechanism (CBAM). The CBAM, which entered its transitional period this month, seeks to impose tariffs on the import of carbon-intensive products such as cement, iron and steel to match the EU’s carbon price. The EU’s admission to the US’ tariff club could complicate the CBAM’s rollout and help to legitimise China’s argument that it runs against the World Trade Organization’s anti-protectionist policies.

Beijing shifts focus of Belt and Road Initiative at 10th anniversary

China now prioritising “small yet smart” projects amid shrinking lending power

China’s 10th anniversary celebrations for its Belt and Road Initiative (BRI) this month were marked by a clear change of direction. Beijing’s global infrastructure project has so far spent as much as US$1 trillion in financing projects including railways, oil and gas pipelines and ports in over 150 countries. The BRI acts as a counter to global Western financing institutions and consequently, influence. The summit was attended by delegates from over 130 countries including Russia’s President Putin, in his first known appearance outside Russia since the International Criminal Court issued his arrest warrant in March.

A shift in China’s strategy for the BRI was a major underlying theme during the event. President Xi made a pledge of US$107 billion for the BRI over the next five years – the equivalent of just a quarter of the US$85 billion per year it was handing out in its first five years. The final spending amount is likely to be even less. This is due to China’s financial institutions being far more restricted in their lending abilities than 10 years ago amid the country’s gloomy economic situation, as well as concerns that the BRI is putting poorer countries into debt traps. The BRI is moving instead towards a focus on “small yet smart” projects with fewer risks and expenses such as renewable energy installations. This is in accordance with China’s diminishing outbound foreign direct investment, which in the US dropped 89 percent between 2016 and 2022.

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Scotland’s offshore wind ambitions face reality of underdeveloped infrastructure

Scarcity of ports on Scotland’s coasts has chilled investment

Scotland is banking on attracting a deluge of offshore wind investments to reach its 2045 net zero target. It aims to have up to 11GW of offshore wind projects operational by 2030, while the UK as a whole aims to have 50GW by 2030. Since launching ScotWind - its first offshore wind leasing round in ten years - in 2020, Scotland has awarded contracts worth a total 28GW capacity. This includes a joint venture between Shell and ScottishPower, which aims to build the world’s first two large-scale floating offshore wind plants off Scotland’s east and northeast coast at a total 5GW capacity. The projects are expected to be completed by 2028 and 2030. Just this year, the 1.1GW Seagreen wind farm – a joint venture between TotalEnergies and SSE Renewables – came online.

Despite its ambitions, Scotland’s underdeveloped infrastructure threatens to deter further investment. Last month, no bids were submitted for any of the UK’s offshore wind subsidy contracts. This is partly due to uncertainty from developers over the lack of new ports being built to support new offshore wind projects. At the same time, port developers are reluctant to build new ports until there is proven demand from offshore wind projects. According to estimates, at current port capacity, Scotland would need to wait another 50 years to achieve its already licensed 45GW of offshore wind capacity. Ageing infrastructure is another issue. Industry group Renewable UK projects 11 ports will need to be upgraded at a total £4 billion (US$7.6 billion) cost by 2030 to support Scotland’s ambitions. The UK government’s recent efforts to water down its decarbonisation ambitions may further decelerate investment.

Appointment of new US House speaker threatens Washington’s support for Ukraine

Despite regaining ability to pass legislation, the Biden administration may face compromises to Ukraine funding

The US House of Representatives this week finally appointed a speaker, Mike Johnson. Johnson, a Trump loyalist, is seen as somewhat of a middle ground between differing Republican Party factions. His appointment marks the end of the House’s search for a new speaker following the ousting of former speaker Kevin McCarthy by a small group of Republicans three weeks ago. The absence of a speaker had effectively frozen the US’ ability to pass legislation and threatened to shut down the government amid the looming November 17 expiration date of state funding.

Johnson’s nomination could present a challenge to the Biden administration’s ongoing attempts to secure funding for Ukraine. Under McCarthy, the House continued to pass several large spending bills to Ukraine despite growing calls within his party to halt funding. This includes one worth US$300 million just last month. However, it is likely that Johnson, who has a track record of voting against funding for Ukraine, will turn the tide. The first test will arrive when Biden’s latest aid package - which reportedly includes US$60 billion for Ukraine, US$14 billion for Israel, as well as funding for security at the US’ border and in the Indo-Pacific - reaches the House. Although Johnson is unlikely to outright reject the bill given his staunch support for Israel, he may ultimately seek an alternate solution such as carving out the funding designated to Ukraine. This could add significant strain to already wavering support for Ukraine aid among Western countries.