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U.S. allies retaliate after Trump lets steel tariffs take effect for Europe, Mexico and Canada

U.S. allies retaliate after Trump lets steel tariffs take effect for Europe, Mexico and Canada
President Trump's plan to impose tariffs on imported steel and aluminum could help domestic producers, although some fear a trade war. Above, orders of machine grade steel are filled at Pacific Machinery & Tool Steel Co. in Portland, Ore. (Natalie Behring / Getty Images)

President Trump’s decision Thursday to slap tariffs on steel and aluminum from Canada, Mexico and the European Union sharply escalated global trade tensions and widened a rift with America’s closest allies.

The Trump administration’s announcement that its once-delayed tariffs would take effect starting Friday was met with swift condemnation and promises of dollar-for-dollar retaliation as well as a multilateral challenge at the World Trade Organization.

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Canadian leaders reacted particularly angrily to the tariffs, 25% on steel and 10% on aluminum. Trump had justified the import levies on the grounds of national security — a line of reasoning that Canadian officials called absurd, illogical and illegal.

Canada, the largest exporter of steel and aluminum to the United States, said it would apply counter-tariffs of 25% and 10% on about $12.8 billion worth of American metals, farm goods and other products, to take effect July 1.

“That Canada could be a national security threat to the U.S. is inconceivable,” said Canadian Prime Minister Justin Trudeau, noting the many Canadians who have died alongside U.S. soldiers in joint military operations over the years. “These tariffs are an affront to the longstanding security partnership between Canada and the United States.”

Mexico responded to the news by announcing immediate retaliatory tariffs on U.S. products including pork bellies, apples, grapes, blueberries and flat steel.

EU leaders already had drawn up a list of American imports worth several billions of dollars that would be subject to tariffs, including blue jeans, Kentucky bourbon and Harley-Davidson motorcycles — goods aimed at applying maximum political pressure as they are produced in home states of top lawmakers.

“This is protectionism, pure and simple,” said Jean-Claude Juncker, president of the EU Commission, which represents the 28-member states in the union. He said the U.S. “now leaves us with no choice” but to impose duties on American imports, although he did not specify the exact amount or timing of the retaliation.

European officials on Thursday met with U.S. Commerce Secretary Wilbur Ross in Paris in a last-ditch effort to dissuade the U.S. from going through with the tariffs, arguing among other things that the administration was directing its aim at the wrong target. They said the source of the problem of excess global steel production is China, not Europe.

Trump first announced plans to tax imported steel and aluminum from all countries in March, but delayed applying the tariffs on the EU, Canada, Mexico and a handful of other countries as the administration sought voluntary quotas or other trade concessions from them. Ross indicated that negotiations could continue even after the tariffs are imposed, but EU officials insisted that the threat of metal tariffs be removed before broader trade discussions could take place.

The EU as a bloc is the United States’ largest trading partner, with exchange of goods and services exceeding $1 trillion. Steel and aluminum make up a tiny fraction of the overall trade: U.S. steel imports from all countries totaled about $29 billion in 2016 — a fifth of that from the EU.

As such, if the U.S. and its trading partners confine the tariffs and counter-tariffs to steel and aluminum, trade experts say, the threat of an expanding global trade war could pass, even as trans-Atlantic relations have been strained by Trump’s pullout of the Paris climate accord and nuclear deal with Iran.

But what worries analysts now is how Trump might react to the trade retaliation. In a separate trade battle with China, Trump initially threatened tariffs on $50 billion of Chinese goods for intellectual property theft, but after Beijing vowed it would match the tariffs, the president proposed tripling the duties on $150 billion of Chinese imports.

“If the U.S. ups the ante and this doesn't remain just a steel issue, particularly with Canada, Mexico, and the EU, then that would be a signal to me that we are spinning out of control,” said Douglas Irwin, an economics professor and trade historian at Dartmouth College. He added: “I can understand, in some sense, the administration starting a trade war with China, but it is enormously damaging and counterproductive to start a trade war with Canada, the EU, and Mexico.”

That sentiment was shared by lawmakers from both parties, many businesses and to some degree even by the United Steelworkers union. Congressional Republicans blasted Trump’s move to levy steel and aluminum imports, predicting it would hurt domestic companies and lead to higher prices for American consumers.

“This is dumb,” said Nebraska Sen. Ben Sasse, adding that similar protectionist measures contributed to the Great Depression in 1929.

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House Speaker Paul D. Ryan (R-Wis.) said that he disagreed with the decision. "Instead of addressing the real problems in the international trade of these products, today's action targets America's allies when we should be working with them," he said.

Some U.S. aluminum producers and groups supporting domestic steel manufacturers and Trump’s “America first” agenda applauded the action.

But the steel and aluminum tariffs are likely to complicate, if not hamper, ongoing negotiations with Canada and Mexico to revamp the North American Free Trade Agreement, a major economic goal for the administration. Trump has made it no secret that the threat of steel and aluminum tariffs was intended as a lever to win concessions from Canada and Mexico.

“The most likely impact is the stalling of the negotiations,” said Christopher Wilson, deputy director of the Mexico Institute at the Wilson Center in Washington.

The new tariffs come one month before Mexico’s July 1 presidential elections, and on Thursday, the country’s presidential candidates bristled at the news. “Don’t play with Mexico,” tweeted Jose Antonio Meade, of the ruling Institutional Revolutionary Party. “We will defend our jobs, our markets and our workers."

Front-runner Andres Manuel Lopez Obrador, of the National Regeneration Movement, warned the Mexican government not to “fall into the trap of a trade war" because Mexico's economy "is very weak. … Therefore we have to act firmly, but at the same time maintain trade relations with the United States, and so dialogue is very important."

Trudeau said he had spoken with Trump last Friday about meeting with the president to finalize a deal on a revised NAFTA, as the parties appeared to have the makings of an agreement. But Trudeau said that Vice President Mike Pence contacted him Tuesday and said that Canada would have to accept a five-year sunset clause as a precondition to a NAFTA deal. A sunset provision would automatically dissolve NAFTA after five years unless the partners all agreed to extend it. Trudeau said that was unacceptable to Canada.

Last week Ross said his agency would consider whether imported cars and car parts are harming U.S. national security and as such should be subject to new tariffs. The department initiated the investigation by tapping the same rarely invoked provision of U.S. trade law, called Section 232, that was the basis for levying taxes on imported steel and aluminum.

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In the metals case, the administration concluded that the rise of foreign steel and aluminum over the years had hurt domestic producers and presented an economic and national security risk to the country because it had resulted in fewer American sources for military armor and infrastructure, such as the electric power grid.

Trump's renewed hard-line moves on trade, including his plan to proceed on tariffs against China, threatened to scuttle ongoing talks with the Chinese, but Ross said Thursday that he would be going to Beijing this weekend, as scheduled, for another round of negotiations.

South Korea had earlier won a permanent tariff exemption on steel after it agreed to a quota, and similar deals have been cut with Brazil, Australia and Argentina. Japan, another major steel supplier to the U.S., earlier was slapped with steel duties as it has steadfastly declined the Trump administration’s overtures to sit down and negotiate a trade deal.

3:50 p.m.: This article was updated with reaction from experts.

12 p.m.: This article was updated with Canada’s reaction.

8:25 a.m.: This article was updated with reaction from Mexico and GOP lawmakers.

7:20 a.m.: This article was updated with additional details about China.

This article was originally published at 6:45 a.m.

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