(Bloomberg) -- Donald Trump hasn’t even secured the Republican nomination for the 2024 US election but the prospect of another Trump term has the European Union so worried that the bloc is leaning toward conceding a key issue to President Joe Biden in an ongoing trade dispute over steel imports.

Most countries in the EU don’t want to provoke a fight with the US as they fear that could boost Trump’s campaign ahead of the November ballot, according to people familiar with the discussions. 

The EU and US have so far failed to reach an agreement on the so-called Global Arrangement on Sustainable Steel and Aluminum that would end a Trump-era trade conflict that saw the transatlantic allies put tariffs on as much as $10 billion of exports. That dispute started when Trump imposed levies on European steel and aluminum, citing national security concerns, prompting retaliatory measures from the EU. 

The two sides agreed to a temporary truce in 2021, when the US partly removed its measure and introduced a set of tariff-rate quotas above which duties on the metals are applied, while the EU froze all of its restrictive measures. That has created an unbalanced situation, according to the EU, that has seen the bloc’s exporters pay over $350 million a year in duties.

The EU wants the US to lift all the tariff-rate quotas as part of the broader GSA agreement, something the US refuses to do. If they fail to reach a comprehensive deal before a year-end deadline then the suspended tariffs from both sides could return. The EU doesn’t expect the US to remove the tariff-rate quotas as it’s politically difficult for Biden to do. 

The European Commission, the bloc’s executive arm, does not expect an agreement on the GSA by the end of the year, so both sides are discussing improving the terms of the truce under the current quotas to correct the imbalance.

The commission told member states during a meeting of trade ministers this week that if the US refuses to reform the system of tariff-rate quotas, the EU could respond by relaunching a case against the US at the World Trade Organization or reimposing some tariffs on American products, said the people, who spoke on the condition of anonymity. 

A spokesperson for the commission didn’t want to confirm the substance of what was discussed during the closed-door talks. 

But most EU countries are not supportive of such options over concerns they could lead to trade tensions with the US ahead of next year’s election, the people said. Other reasons included preserving the EU’s economic interests and not wanting to affect the EU-US alliance ahead of European elections in June.

“To avoid an unnecessary escalation, we have agreed that the US should improve the administration of the tariff-rate quotas for EU’s exports of steel and aluminum,” the EU’s trade chief Valdis Dombrovskis told the European Parliament’s trade committee on Tuesday. “It remains to be seen what exactly the US will be able to put on the table in this regard. This is now a matter of days.”

Tariff Return

Dombrovskis said at an event on Wednesday that the tariff-rate quotas were “highly likely to be rolled over,” but the question is how to do so.

Negotiators are considering prolonging the truce but the EU is looking to improve the tariff-rate quotas. A key EU ask is that it wants the US to replace the current system, which comprises dozens of both quarterly quotas and categories of steel, with annual quotas in order to better reflect historical flows, Bloomberg previously reported.

For the commission and member states the priority now is to avoid reimposing the full set of tariffs and retaliatory measures just as the allies are joining forces in supporting Ukraine against Russia’s invasion and are working to align their response to China.

Dombrovskis is in talks with his US counterparts and said earlier this week that there is “some openness” from the Biden administration side without giving further details.

©2023 Bloomberg L.P.