US fires first shot in trade war with allies

The US has fired the opening shot in a trade war with three of its biggest trading partners by deciding to begin levying tariffs on imports of steel and aluminium from the EU, Canada and Mexico. 

The move to take action against longstanding US allies on national security grounds sets the stage for a round of tit-for-tat tariffs among some of the world’s largest economies just days ahead of a meeting of G7 leaders in Canada. 

The EU has said for months that it would retaliate against any US tariffs and Jean-Claude Juncker, the European Commission president, said on Thursday that the bloc would go ahead with plans to impose its own duties on US products such as bourbon, motorcycles and peanut butter. 

“This is a bad day for world trade,” Mr Juncker said.

Ahead of the announcement, France’s finance minister warned the EU would have no choice but to “enter a trade war” against the US if President Donald Trump imposed the new metals tariffs. “Our US friends must know that if they were to take aggressive actions against Europe, Europe would not be without reaction,” said Bruno Le Maire, after meeting Wilbur Ross, US commerce secretary, in Paris.

This is primarily now only attacking our economic and military allies

Justin Trudeau, Canada’s prime minister, called the new tariffs “totally unacceptable” and made clear his offence at being labelled a national security threat to the US. 

“For 150 years, Canada has been America’s most steadfast ally . . . From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together,” he said. “That Canada could be considered a national security threat to the United States is inconceivable.”

Canada said it would target $12.8bn in imports from the US for retaliation including aluminium and steel but also everyday consumer goods such as dishwasher detergent.

Mexico also said it would impose its own retaliatory tariffs on a wide range of products from US steel to pork, sausages, and fruit such as apples, grapes and blueberries.  

“This marks a significant escalation [by the US and] the first big shot in the long-feared trade war,” said Edward Alden, a senior fellow at the Council on Foreign Relations in Washington. 

The move by the US and swift reaction from allies came after Mr Ross said negotiations with the EU in recent months had gone nowhere and that discussions with Canada and Mexico to update the North American Free Trade Agreement were taking too long.

The duties of 25 per cent on steel and 10 per cent on aluminium, which Washington claims are necessary on national security grounds, were first announced in March as part of a crackdown by the US on China and its flooding of cheap metals into global markets. 

But Thursday’s events highlighted how Mr Trump’s efforts to take a harder line on China have ended up damaging even larger economic relationships with traditional allies such as the EU and its Nafta partners. Along with trade talks between the US and China in Beijing this weekend, they are likely to cast a shadow over talks between Mr Trump and fellow G7 leaders next week. 

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said very little impact was being felt by China from the Trump metals tariffs, given that China’s exports of steel and aluminium to the US were now negligible and mostly subject to severe anti-dumping duties. “This is primarily now only attacking our economic and military allies,” he said. 

Total US trade with the EU was worth almost $720bn last year compared to the $636bn in trade US companies did with China. Its trade with Nafta partners Canada and Mexico, which have become integrated into many US companies’ supply chains, was worth more than $1.1tn.  

Those relationships are likely to be tested even further in the months to come as the Trump administration sets its sights on trade in cars. Last week, it launched a national security investigation into imports of cars and parts with a view to imposing a 25 per cent tariff that risks hurting Asian and European producers, many of which have major production facilities in the US.   

After meeting jointly with US trade representative Robert Lighthizer to discuss how to tackle China’s steel overcapacity and other issues on Thursday, EU trade commissioner Cecilia Malmstrom and Japan’s Hiroshige Seko warned that the US was putting the entire global trading system at risk with its auto move. 

“This would cause serious turmoil in the global market and could lead to the demise of the multilateral trading system based on [World Trade Organization] rules,” they said.

“If Trump comes up with anything close to 25 per cent tariffs on German cars, I would really see it as the end of the German-American trade relationship. Not a single car built in Germany and sold to the US would be sold at a profit,” said Arndt Ellinghorst, analyst at Evercore ISI.

Adam Marshall, director-general of the British Chambers of Commerce, said the news was “hugely damaging”, predicting the tariffs would damage communities in many parts of Britain.

“As the UK leaves the EU, the American government’s decision to impose punitive tariffs is a helpful reminder that self-interest looms large in trade negotiations,” he said. “Ministers should reflect on this carefully before they pursue any future trade deal between the UK and the USA.” 

Liam Fox, the British trade secretary, said he still hoped that the US could be convinced that Chinese over-production was the problem rather than European production.

Mr Fox described the tariffs as “very disappointing” and — given that Britain sent steel to the US defence industry — “patently absurd”.

Also looming are billions in potential trade sanctions against the EU resulting from a long-running dispute between Boeing and Airbus with the WTO earlier this month siding with the US in one case and another decision looming that many expect to go in the EU’s favour. 

Mr Ross said the US had no choice but to impose tariffs on allies as it sought to address Chinese over-production of steel and aluminium, much of which entered the US via third countries to evade existing anti-dumping tariffs. 

Additional reporting by Anne-Sylvaine Chassany in Paris, Jim Brunsden and Mehreen Khan in Brussels, John-Paul Rathbone in New York, Jim Pickard in London and Patrick McGee in Frankfurt

Letter in response to this article:

American consumers and industry wary over tariffs / From Roger Gill, Cradley, Herefordshire, UK