Trade

Trumps global trade war

Donald Trumps move to slap penalties on imports from U.S. allies including the EU is moving the country to the brink of a global trade war — with U.S. consumers, farmers and manufacturers caught in the middle — as the White House tries to wrest concessions from reluctant trading partners.

The Trump administration will impose new duties on steel and aluminum imports from the European Union, Canada and Mexico after failing to reach deals with them to address national security concerns related to the imports, Commerce Secretary Wilbur Ross said Thursday.

The decision has implications for farmers in key Midwestern states who will see their exports crimped, consumers who are expected to pay more, workers who may see cost-cutting in export-heavy industries and global relations with crucial trading partners as the U.S. tries to exert pressure on China.

“Today is a bad day for world trade,” said EU Trade Commissioner Cecilia Malmström, who tried to persuade the Trump administration to permanently exempt the EU from the new tariffs and begin trade negotiations instead.

“Throughout these talks, the U.S. has sought to use the threat of trade restrictions as leverage to obtain concessions from the EU. This is not the way we do business, and certainly not between longstanding partners, friends and allies,” she said.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO.

It also indicates that the U.S. administration has given up hope of finishing NAFTA negotiations with Canada and Mexico in the near future. That raises the question of whether Trump will have the patience to wait until later this year or possibly even 2019 to get a new agreement, or if he will make good on a campaign promise to pull out of the 24-year-old pact. In addition, Mexicos presidential elections are just a month away, and a new government may feel populist pressure to avoid giving any concessions to the Trump administration.

Mexico condemned the move and provided a partial list of $3 billion worth of U.S. imports that it will hit with retaliatory duties. The items include manufactured goods like lamps as well as agricultural imports from its neighbor like pork, apples and various cheeses.

European Commission President Jean-Claude Juncker said the EU now had “no choice” but to challenge the U.S. action at the WTO and to proceed with initial plans to retaliate on $3.3 billion worth of U.S. exports including items like yachts, whiskey bourbon, lipstick and orange juice. Those duties are expected to go into effect in mid-June.

Agricultural products make up about one-third of the total EU retaliation list in terms of value, with goods like kidney beans, rice, cranberries and peanut butter facing tariffs. The list also hits about $1 billion worth of U.S. iron and steel goods.

Trump will meet Canadian Prime Minister Justin Trudeau, left, at the G7 | Pool photo by Kevin Dietsch/Getty Images

“This action puts American workers and families at risk, whose jobs depend on fairly traded products from these important trading partners. And it hurts our efforts to create good-paying U.S. jobs by selling more Made in America products to customers in these countries,” said House Ways and Means Chairman Kevin Brady (R-Texas).

The action also casts a pall over the coming G7 meeting in Canada, where Trump will meet with other leaders of the worlds seven leading Western economies, including Canadian Prime Minister Justin Trudeau, French President Emmanuel Macron and German Chancellor Angela Merkel.

“Mr. Trump will be like the proverbial skunk at the garden party given the protectionism,” said Colin Robertson, a former Canadian trade negotiator and vice president of the Canadian Global Affairs Institute. “He is the outlier anyway, but this is simply going to make those two days of discussions more tense.”

A threat to domestic production

The latest move is another outgrowth of a Trump administration investigation released earlier this year that found that the overall volume of imports posed a threat to U.S. national security by undermining domestic production of the two metals.

The U.S. imported $29 billion worth of steel in 2017 — about half of which came from the EU, Canada and Mexico. Canada supplied more than 40 percent of the $17.8 billion worth of aluminum the U.S. bought in from foreign suppliers last year.

China is largely blamed as the primary source of global excess capacity in both the steel and aluminum sectors. But the U.S. imported just $1 billion worth of steel and $1.7 billion worth aluminum from China last year because of extensive duties that have been in place for years.

The EU, Mexico and Canada argued that they are such close allies of the U.S. they are unlikely to cut off steel and aluminum shipments in times of war. But the Trump administration rejected that reasoning.

“There is potential flexibility going forward. The fact that we took a tariff action does not mean there can not be a negotiation” — Wilbur Ross, U.S commerce secretary

Despite the brinkmanship, Ross said the Trump administration wants to continue negotiations. He said hes still planning to make a trip to Beijing this weekend even after the U.S. announced it would slap tariffs on $50 billion in Chinese goods, jeopardizing a fragile agreement to reduce the U.S. trade deficit with China. And Ross also said theres still scope for negotiations with Canada, Mexico and the EU that could reduce or eliminate the tariffs.

“There is potential flexibility going forward,” Ross said. “The fact that we took a tariff action does not mean there can not be a negotiation.”

Surprise for neighbors

The decision to impose tariffs came as a shock to Canada and Mexico, as both countries thought that they would be spared from the levies because of earnest negotiations that they have had with administration officials over NAFTA. One U.S. industry official who had been in contact with negotiators from both sides said neither country had been notified by the White House as of Wednesday evening and they were learning of the possibility of tariffs from news reports.

But after nine months of NAFTA negotiations, there is no clear end to the talks and therefore Canada and Mexico were added to “the list of those that will bear tariffs,” Ross said.

Canadian Foreign Minister Chrystia Freeland had traveled to Washington on Tuesday to discuss the issue, among other matters, with U.S. Trade Representative Robert Lighthizer. But she left having made little progress in discussions and having little idea of what the Trump administrations plans were, two sources briefed on the meeting said.

“Canada considers it frankly absurd that we would in any way be considered to be a national security threat to the United States,” Freeland told reporters Wednesday. “I would like to absolutely assure Canadian participants, those who work in steel and aluminum industries, that the government is absolutely prepared to and will defend Canadian industries and Canadian jobs.”

Republican Senator Ben Sasse said that Trumps move was “dumb” | Drew Angerer/Getty Images

Other Republican members of Congress were quick to criticize the move.

“This is dumb. Europe, Canada, and Mexico are not China, and you dont treat allies the same way you treat opponents,” Sen. Ben Sasse (R-Neb.) said in response to the action. “Weve been down this road before — blanket protectionism is a big part of why America had a Great Depression. Make America Great Again shouldnt mean Make America 1929 Again.'”

The Aluminum Association, which represents much of the aluminum companies in the U.S., also said that it was “disappointed” by the announcement. “Todays action does little to address the China challenge while potentially alienating allies and disrupting supply chains that more than 97 percent of U.S. aluminum industry jobs rely upon,” said Heidi Brock, the groups president and CEO.

But defenders of the administrations action said it was badly needed to restore order to international steel and aluminum sectors.

“This situation needs to be dealt with. The rest of the world has enabled China to continue to produce massive amounts of steel with excess capacity into the hundreds of millions that has totally disrupted the global steel industry,” said Dan DiMicco, a former trade adviser to Trump.

The EU has announced plans to impose safeguard restrictions on imports | Carl Court/Getty Images

DiMicco, who was a long-serving CEO of U.S. steelmaker Nucor, said China has always found ways to circumvent previous restrictions by sending products via Canada and Mexico, as well as Vietnam and South Korea, where they are slightly modified or relabeled before being sent to the U.S.

“If the whole world had dealt with this problem originally as we talked about for the better part of a decade now, we wouldnt be where were at,” he said. “But we are where were at because nothings been done and its time to get it done.”

In that regard, the Trump administration hopes other countries will follow the lead of the EU, which has announced plans to impose safeguard restrictions on imports, so it isnt hit with product diverted from the U.S.

“We look forward to other countries doing very similar things to shut down this very global problem,” Ross said.

Megan Cassella, Adam Behsudi and Hans von der Burchard contributed reporting.

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