Trump sets off a trade war: Mexico, Canada and EU vow retaliation for tariffs

The unthinkable is now a reality: Commerce Secretary Wilbur Ross confirms tariffs will go into force at midnight

Published May 31, 2018 2:13PM (EDT)

Donald Trump; Wilbur Ross (Getty/Salon)
Donald Trump; Wilbur Ross (Getty/Salon)

The Trump administration announced on Thursday that it would impose hefty metal tariffs on the European Union, Canada and Mexico starting Friday, immediately provoking fears of an international trade war that sent stocks tumbling.

The measure has already been met with vows of retaliation against American businesses and now threatens the future of the North American Free Trade Agreement (NAFTA).

The action, which was first announced in March, would place a 25 percent tariff on steel and a 10 percent tariff on aluminum on the three key trading allies, which supply nearly half of America's imported metal. It will go into effect at midnight on Thursday, Commerce Secretary Wilbur Ross said on a call with reporters.

The European Union, Canada and Mexico allies had obtained temporary exemptions to the initial metal tariffs when they were first announced two months ago, while the Trump administration lobbied those countries for concessions on other measures to avoid the tariffs. Despite discussions with the Europeans, Ross on Thursday said developments had not warranted either another temporary exemption or a permanent exemption.

The tariffs are meant to make good on the president's long-standing promises to protect American industries, but they guarantee a fierce response from the trading partners, who have all warned the U.S. that they plan to impose retaliatory taxes on U.S. exports in return, as well as American businesses that use steel and aluminum, which are seeing their costs rise as a result of the plan.

Ross defended the measure on Thursday, saying, "We take the view that without a strong economy, you can't have a strong national security." The tariffs have been introduced under a legal measure that centers on protecting America's national security.

The trading partners have fiercely opposed the national security argument, citing their close alliance and defense treaties with the United States. On Wednesday, Canadian Foreign Minister Chrystia Freeland called the idea that metal imports from her country would threaten American national security "frankly absurd," according to Politico.

"We look forward to continued negotiations with Canada and Mexico on one hand and with the European Commission on the other hand as there are other issues we need to get resolved," the commerce secretary told reporters on a call. Ross said the White House would need to see the response from Canada, Mexico and the EU before deciding what to do next. He also said that U.S. officials are "quite willing and eager" to have further discussions with the three trading partners.

Mexico has already hit back, imposing wide-ranging "equivalent" measures on farm and industrial products, the country's economy ministry said Thursday. The Mexican measures will be in place until the U.S. government gets rid of its tariffs, the ministry said.

Mexico's response, which targets pork legs, apples, grapes and cheeses, as well as steel, could mark a severe blow to farm states that overwhelmingly support Trump, threatening to establish a new Republican battleground ahead of the midterm elections in November.

The EU announced a similar plan of attack and will launch a case at the World Trade Organization against the United States, Trade Commissioner Cecilia Malmstrom said in a statement.

"Now that we have clarity, the EU's response will be proportionate and in accordance with WTO rules," said Malmstrom. "We will now trigger a dispute settlement case at the WTO, since these U.S. measures clearly go against agreed international rules." Malstrom said the EU also plans to "impose rebalancing measures and take any necessary steps to protect the EU market from trade diversion caused by these U.S. restrictions."

The 28-European nation bloc is expected to retaliate with promised tariffs on American goods including bourbon, jeans and motorcycles, and on agriculture products of about $3.3 billion, Bloomberg reports.

Canada's Department of Finance announced on Thursday that "in response to these measures, Canada intends to impose surtaxes or similar trade-restrictive countermeasures against up to C$16.6 billion in imports of steel, aluminum, and other products from the U.S"

In preparation to retaliatory measures, Ross said, "If any of these parties retaliate that does not mean that there can’t be continuing negotiations," and noted "there is potential flexibility going forward."

South Korea had previously reached a deal with the Trump administration for an exemption. AustraliaArgentina and Brazil have also secured agreements that will exempt them from the tariffs for now.

Trump's announcement came despite months of heavy condemnation from American companies that use metals in their products, like automakers and food manufacturers who told the White House that tariffs could raise their costs, lower their profits and force them to raise prices or lay off workers. Meanwhile, foreign officials warned the tariffs would strain relations and could provoke retaliatory trade responses. It also elicited pushback response from Republican in Congress who are worried penalties from trading partners could pose a blow to American companies, workers — especially farmers — a group which the action would ultimately hurt American companies and workers, especially farmers, a group which the president won by larger margins in November.

Some Republican lawmakers denounced Trump's move to hike tariffs, highlighting how far Trump has moved away from the party's traditions of embracing free and open markets.

Earlier this week, Paul Ryan, Republican Speaker of the House of Representatives, said he was "extremely worried about the consequences of a trade war" and urged the president to drop his tariff proposal. Ryan hails from Wisconsin where motorbike maker Harley-Davidson Inc. is based. Since news of Thursday's tariff measure, the company has seen its sales drop.

Other stocks tumbled in response to the looming tariffs, reigniting fears of a trade war.

The Dow Jones Industrial Average fell by 260 points, or 1 percent, and the Standard & Poor's 500 industrial sector fell 1.2 percent immediately after Ross's announcement Thursday morning. Shares of American automakers, all large buyers of steel and aluminum, slipped, as did shares of Boeing, a large exporter that could be hurt if other nations, especially China, hit back against Trump's imposed tariffs.

Most recently, conservative billionaire donors Charles and David Koch denounced the decision to impose the tariffs, urging the White House to "abandon" similar policies.

"Trade barriers make Americas as a whole poorer and they especially harm those already disadvantaged," James Davis, a spokesman for the Koch network, said in a statement to CNBC. "Trade wars hurt everyone. They trigger retaliatory tariffs from our trade partners and that raises prices on American families who need affordable access to household goods. We urge the Trump administration to abandon these tariffs."

And in March, when the tariff hike was first proposed, Senator Orrin G. Hatch, Republican of Utah and the chairman of the Senate Finance Committee, called tariffs "a tax hike the American people don’t need and can’t afford."

Republican Senator Ben Sasse of Nebraska also blasted Trump's plan, saying "protectionism is weak, not strong."

"Let's be clear: The president is proposing a massive tax increase on American families," said Sasse. "You'd expect a policy this bad from a leftist administration, not a supposedly Republican one."

Trump's new top economic adviser

Is a once unthinkable US vs. EU trade war the brainchild of Trump's newest economic adviser?

By Shira Tarlo

MORE FROM Shira Tarlo

Related Topics ------------------------------------------

Canada Donald Trump Eu Mexico Steel Tariffs Trade Trade War Trump Country Wilbur Ross