Trump’s tariffs trigger escalation in trade war
ANGER GROWS: Action prompts fierce response from U.S. allies, leaves domestic firms exposed
WASHINGTON — The Trump administration said Thursday that it would impose steep tariffs on metals imported from its closest allies, provoking retaliation against U.S. businesses and consumers and further straining diplomatic ties tested by the president’s combative approach.
The European Union, Canada and Mexico, which will face 25 percent tariffs on steel and 10 percent on aluminum, quickly denounced the action and drew up lists of tit-for-tat measures, many aimed at parts of the United States where President Donald Trump enjoys his strongest political support.
The move follows months of uncertainty as the Trump administration dangled potential exemptions for allies in return for concessions on other fronts. In moving forward with tariffs on national security grounds, the administration now faces a crucial test of whether its aggressive strategy will extract promises from trading partners or end up
backfiring on the U.S. economy.
The tariffs “have already had major, positive effects on steel and aluminum workers and jobs and will continue to do so long into the future,” White House officials said in a statement. “At the same time, the Trump administration’s actions underscore its commitment to good-faith negotiations with our allies to enhance our national security while supporting American workers.”
By keeping trading partners guessing, the president has sought to create leverage in trade negotiations, including in talks over the North American Free Trade Agreement with Mexico and Canada. But in the process, he has sowed an atmosphere of chaos among allies as well as manufacturers uncertain about the ultimate impact on their vast supply chains.
The latest twist in the trade drama does little to alleviate the confusion among business owners and foreign leaders. Although the Trump administration signaled a tougher stance with the tariffs, it also left open the possibility for continued negotiations with affected countries.
Allies respond in anger
As trade tensions escalate, Europe, Canada and Mexico are threatening to respond in kind, raising the potential of an all-out trade war.
Chancellor Angela Merkel of Germany, on Thursday, called the tariffs “illegal,” while saying “the measures carry the threat of a spiral of escalation that will result in damaging everyone.”
Prime Minister Justin Trudeau of Canada said it was “inconceivable” that Canada “could be considered a national security threat.”
Within minutes of the U.S. action, Mexico had detailed a list of goods to target for retaliation, including steel, pork, apples, cranberries and cheeses.
“For the first time in generations, we’ve really thrown out the rule book with our best trading partners,” said Rufus Yerxa, the president of the National Foreign Trade Council, which represents some of the largest exporters in the United States. “We can’t expect them to continue business as usual with us if we are throwing out the rules. So that means everything from airplanes to agriculture is on the chopping block.”
When the broad tariffs on steel and aluminum were first imposed in March, Trump quickly carved out temporary exemptions for Canada and Mexico. Later, he added the European Union and other countries with the expectation that they would hash out separate agreements on quotas or similar restrictions. Since then, the Trump administration reached deals with South Korea, Brazil, Australia and Argentina, which agreed to restrain their metals shipments.
But the tariffs loomed in the backdrop as the administration continued to negotiate with Mexico and Canada over NAFTA and European officials over other trade matters. Neither set of talks achieved much.
On NAFTA, the Trump administration had been pushing for a quick conclusion to ensure the deal passed through Congress this year. But negotiations have sputtered as the countries remain divided on several important issues, such as the rules for automobile manufacturing.
Trudeau said the countries had the broad lines of “a decent win-win-win deal” last week. He spoke to Trump and offered to travel to Washington so they could work out the final details.
But Vice President Mike Pence on Tuesday phoned to tell the Canadian prime minister that the precondition of a deal was a sunset clause, meaning the pact would automatically expire unless the three countries voted to continue it. The idea has drawn ire from both foreign leaders and business executives, who say it undercuts the surety that trade agreements are meant to create.
“I had to highlight that there was no possibility of any Canadian prime minister signing a NAFTA deal that included a fiveyear sunset clause,” said Trudeau, adding, “and obviously the visit didn’t happen.”
Europeans had sought deal
European officials had tried offering the United States a limited trade deal. They wanted to avoid tit-for-tat actions — something they view as unproductive, economically perilous and detrimental to the increasingly fraught relationship between the longtime allies.
Germany, in particular, had pressed for a negotiated solution, but officials there grew wary after Trump announced that he would begin a separate trade investigation into automotive imports. If car tariffs go into effect, they would especially hurt Germany’s economy.
Allies have vowed to challenge the legal statute the Trump administration used to roll out the tariffs, which is related to national security.
The Trump administration has argued that imports have weakened the country’s industrial base, and, by extension, its ability to produce tanks, weapons and armored vehicles. “We take the view that without a strong economy, you can’t have strong national security,” the commerce secretary, Wilbur Ross, said Thursday.
The European Union and Canada have objected strongly to the idea that they pose any kind of threat to national security, citing their close alliances and defense agreements with the U.S. Jean-Claude Juncker, the president of the European Commission, called the steel and aluminum tariffs announced by the White House on Thursday “protectionism, pure and simple.”
With the tariffs set to go into effect at midnight, all three allies are readying their counterattacks.
Canada announced corresponding tariffs on a broad list of U.S. exports, including steel and aluminum, as well as dozens of basic consumer products like ketchup, insecticides and laundry machines.
The Canadian tariffs, which go into effect July 1, will cover $12.8 billion worth of U.S. goods, the value of Canadian steel and aluminum exports to the United States in 2017.
“This is the strongest trade action Canada has taken in the postwar era,” said Canada’s foreign minister, Chrystia Freeland. “This is a very strong Canadian action in response to a very bad U.S. decision.”
Along with fighting the tariffs at the World Trade Organization, European officials have been preparing levies on an estimated $3 billion of imported U.S. products in late June. In a joint statement, ministers from France and Germany said the countries would coordinate their response.
Caught in the crossfire?
Whether U.S. consumers and companies get caught in the crossfire depends on how it all plays out.
After the tariffs took effect on China, Russia, Japan and Turkey in March, prices on steel and aluminum broadly began to rise.
U.S. metal manufacturers say that has helped to level the playing field. Century Aluminum, which has supported the tariffs, said the action “protects thousands of American aluminum workers and puts U.S. national security first.”
But it has left businesses that rely on imported metals, like beer-makers, auto manufacturers and others, exposed. And now that the tariffs will hit America’s closest allies, some early supporters are changing their view.
Canada is the largest supplier of both steel and aluminum to the United States, and the supply chains for many products snake back and forth across the border.
The United Steelworkers union, which represents members in Canada as well as the United States, said the decision called “into serious question” the design and direction of the administration’s trade strategy.