The Impact of a US Border Carbon Fee on the Steel Industry and Trade:

An Assessment of the Foreign Pollution Fee Act

Authors: Ali Hasanbeigi, Cecilia Springer, Pinchookorn Chobthiangtham

We employ a data-driven methodology to assess the potential impacts of the FPFA on U.S. steel trade between 2026 and 2030. Using 2024 trade data from the UN Comtrade database, the analysis models steel import volumes by country and product type and combines this with country-specific physical-basis carbon intensity (tons CO₂ per ton of steel) estimates based on production route shares. These estimates enable calculation of the emissions embedded in steel imports and the corresponding FPFA charges, which vary depending on their emissions intensity relative to a U.S. benchmark. We also model how these charges would evolve under the FPFA’s proposed tiered structure and adjust for higher charges applied to non-market economies or facilities controlled by foreign entities of concern. Import fee scenarios are paired with different elasticity assumptions to assess how responsive import volumes may be to the added cost, thereby estimating both reductions in steel imports and expected federal revenue. Overall, the study offers a structured framework for understanding how the FPFA could reshape U.S. steel import patterns and contribute to carbon-based trade policy.

The analysis finds that the FPFA could substantially reduce U.S. steel imports from current sources, particularly from carbon-intensive producers. Under the import demand elasticity of -1.0 scenario, steel imports fall by 34% from current steel suppliers in 2026 compared to 2024 levels, a decline of 12,730 kilotons (kton) per year (Figure ES1). The annual reductions increase slightly in subsequent years, and the cumulative effect remains significant.

Note: This analysis isolates the potential impact of the FPFA itself; the results should be interpreted as incremental to existing tariffs, including Section 232, rather than a combined estimate. In addition, while the latest FPFA draft establishes a process for determining product- or country-specific exemptions, this study models a broad application of charges, as exemption outcomes are uncertain and outside the scope of the analysis.

Under an import demand elasticity of -1.0, the FPFA is projected to cause sharp declines in U.S. steel imports from high-carbon-intensity suppliers, with the largest reductions for China (–95%) and Vietnam (–85%), and significant drops for the Netherlands, Austria, India, and Japan. Moderate declines are expected for Brazil, Malaysia, South Korea, and the UK, while Canada and Spain see minimal decreases. No reductions are projected for Italy, Mexico, Thailand, or Türkiye. Overall, the policy would heavily impact most current suppliers unless exemptions or agreements are in place, while cleaner producers would be less affected.

The findings suggest that the FPFA could significantly alter US steel trade patterns, encouraging lower-emission production methods abroad while increasing the competitiveness of cleaner steel sources in the U.S. market. In this study, we did not model how reduced imports would be replaced. However, given that U.S. raw steel production capacity in 2024 was 107 Mt per year, while actual production was 81 Mt (USGS 2025), the domestic industry has some headroom to increase output. At the same time, some substitution with alternative sources of steel supply from countries with cleaner production may also occur.

Correspondingly, projected FPFA revenue from steel imports ranges from $2.6 billion to $5.8 billion in 2026 and gradually increases to $3 billion to $7.8 billion per year by 2030. This revenue trajectory reflects the elasticity of demand - when buyers are more responsive to price increases, import volumes fall more sharply, reducing the revenue base. The cumulative FPFA revenue from 2026 to 2030 is substantial, estimated between $14.7 billion and $36.3 billion in 2023, depending on elasticity assumptions (Figure ES3).

We also outline in this report how the proposed FPFA would interact with existing U.S. steel tariffs, particularly tariffs imposed under Section 232 of the Trade Expansion Act of 1962. Since 2018, the United States has imposed a 25% tariff on most steel imports under Section 232, with limited country exemptions or quota arrangements, aiming to reduce dependence on foreign steel and support domestic production. In February 2025, President Trump eliminated those country-specific exemptions, and in June 2025, he raised the tariff rate on steel imports from 25 to 50 percent. While steel (and other) products covered by Section 232 tariffs are largely exempt from President Trump’s global “reciprocal” tariffs imposed under the International Emergency Economic Powers Act (IEEPA), a separate 20 percent tariff imposed under IEEPA on imports from China (related to fentanyl trafficking) does apply to steel imports originating in China.

If enacted, the FPFA would not replace Section 232 at this time but would instead layer a carbon-intensity-based tariff on top, with distinct objectives and enforcement mechanisms. This dual system could lead to overlapping charges on the same product, substantially increasing costs for importers and complicating administration. Some proposals suggest coordination through trade agreements or flexibility to reduce one tariff if the other achieves the intended goals. Without coordination, however, clean steel could be penalized the same as high-emission steel under Section 232, potentially discouraging imports of lower-carbon steel even as other markets (e.g., the EU) reward them. In this context, harmonizing the FPFA with existing trade tools can avoid redundancy and enable cleaner trade while keeping the US steel industry competitive.

The successful implementation of a U.S. border carbon fee like the FPFA requires a design that reflects domestic carbon benchmarks, production capacity, trade elasticity, and international trade rules, while also supporting innovation in low-carbon technologies. To improve transparency and predictability, the FPFA’s administration should be streamlined through harmonized international methodologies as much as possible, the use of existing emissions data, and clear exemption rules.

The FPFA should base initial-period variable charges on physical-basis carbon intensity (tons CO₂ per ton of steel) rather than the current monetary-basis values. Physical-basis carbon intensity provides a fairer and more accurate reflection of steel production emissions and more accurately rewards the U.S. domestic steel industry, which has one of the lowest average emissions globally. The policy should also account for broader impacts, such as import reductions, supply capacity, charge levels, and equivalent carbon prices, and apply the tier-system formula with physical-basis carbon intensity data from the start to improve fairness, transparency, and effectiveness in promoting low-carbon steel production.

The current one-size-fits-all variable charge calculation method in FPFA for all covered industries fails to account for sector-specific differences, which may lead to excessive import reductions, even from cleaner sources, disrupting downstream industries such as construction and automotive. A sector-specific approach (for steel, aluminum, glass, fertilizer, etc.) is needed to better balance environmental goals with trade impacts. In parallel, aligning the FPFA with emerging global carbon border policies, especially the EU CBAM, through mutual recognition of methodologies and verification systems will help reduce compliance costs and promote consistency in international climate policy.

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