The Belval blast furnace, vestiges of Luxembourg's steel heritage
Photo: Fonds Belval
The United States and its traditional allies are on the brink of a full-scale trade war after European and Canadian leaders reacted swiftly and angrily to Donald Trump’s decision to impose tariffs on steel and aluminium producers.
The president of the European commission, Jean-Claude Juncker, promised immediate retaliation after the US commerce secretary, Wilbur Ross, said EU companies would face a 25% duty on steel and a 10% duty on aluminium from midnight on Thursday.
Europe, along with Canada and Mexico, had been granted a temporary reprieve from the tariffs after they were unveiled by Donald Trump two months ago.
However, Ross sent shudders through global financial markets when he said insufficient progress had been made in talks with three of the US’s traditional allies to reduce America’s trade deficit and that the waiver was being lifted.
Wall Street slumped as the Dow Jones Industrial Average shed more than 200 points, while shares across Europe also declined.
Protectionist action threat
The move from Washington – which comes at a time when Trump is also threatening protectionist action against China – triggered an immediate and angry response from Canada, Brussels and from individual European capitals.
Juncker called the US move “unjustified” and said the EU had no choice but to hit back with tariffs on US goods and a case at the World Trade Organisation in Geneva.
“We will defend the Union’s interests, in full compliance with international trade law,” he added.
Brussels has already announced that it would target Levi’s jeans, Harley-Davidson motorbikes and bourbon whiskey.
The UK, which has hopes of agreeing a trade liberalisation deal with the US after Brexit, expressed alarm at Ross’s announcement.
Liam Fox, the international trade secretary, said Britain would not rule out countermeasures or taking Washington to the WTO, which arbitrates on global trade disputes.
Speaking to Sky News he attacked the tariffs as “patently absurd” and urged the US to think again. “It would be a great pity if we ended up in a tit-for-tat trade dispute with our closest allies.”
A spokesman for Number 10 said the government was “deeply disappointed” the US had decided to apply the tariffs and that Theresa May would raise the issue with Trump at next week’s meeting of the G7 industrial nations in Canada.
“The UK and other European Union countries are close allies of the US and should be permanently and fully exempted from the American measures on steel and aluminium.”
Tit for tat response
The French president, Emmanuel Macron, called the US tariffs illegal and a mistake, while the Canadian prime minister, Justin Trudeau, issued an immediate like-for-like response – announcing tariffs of up to 25% on US imports worth up to 16.6bn Canadian dollars (£9.6bn), which was the total value of Canadian steel exports to the US last year. The tariffs will cover steel and aluminium as well as orange juice, whiskey and other food products.
With the White House having used national security legislation to introduce the tariffs, Trudeau called the measures an “affront” to Canadians who had fought alongside their American comrades in arms. “That Canada could be considered a national security threat to the US is inconceivable.”
Hopes remain that the fallout could be contained. Analysts at the research firm Oxford Economics said the economic hit for Europe would be well below 0.1% of GDP, as steel and aluminium only make up a small part of the bloc’s overall exports around the world. However, they warned a tit-for-tat escalation leading to tariffs on other goods, such as cars, would have dire consequences for global trade.
Last week, the Trump administration launched a national security probe into car imports on national security grounds that could lead to tariffs on cars from Europe, Japan and South Korea, should trade tensions spiral further out of control.
Damaging trade war
For the struggling UK steel industry, the news of US tariffs prompted fresh alarm. The director of UK Steel, Gareth Stace, said: “President Trump had already loaded the gun and today, we now know that the US administration has unfortunately fired it and potentially started a damaging trade war.
“Since President Trump stated his plans to impose blanket tariffs on steel imports almost three months ago, the UK steel sector had hoped for the best but still feared the worst. With the expiration of the EU exemption now confirmed to take effect tomorrow [Friday, 1 June], unfortunately our pessimism was justified and we will now see damage not only to the UK steel sector but also the US economy.”
The CBI warned the EU against overreacting to Washington’s move. Ben Digby, international director at the employers’ organisation, said: “The president’s measures are deeply concerning for firms in the UK, for close trading partners and across supply chains.”
Trump announced his tariffs in March as a way of protecting US firms from cheap imports but Digby said the problem was caused by global overproduction of the metals and needed to be tackled jointly by Brussels and Washington.
“There are no winners in a trade war, which will damage prosperity on both sides of the Atlantic. These tariffs could lead to a protectionist domino effect, damaging firms, employees and consumers in the US, UK and many other trading partners. Now is not the time for any disproportionate escalation, and we urge the EU to consider this when initiating its response.”
Damaging US consumers
But neither side showed any immediate sign of being willing to defuse the tension. Cecilia Malmström, the European trade commissioner, said the Brussels response would be proportionate and in accordance with WTO rules. Ross shrugged off the threat of EU retaliation, saying it would have little impact on the US economy.
Manfred Weber, the leader of the European People’s party, the largest group in the European parliament and a key ally of German chancellor Angela Merkel, warned that treating the EU as the “enemy” would damage US consumers.
“Europe does not want a trade conflict. We believe in a fair trade regime from which everybody benefits,” he said.
“We have tried everything to make dialogue and mutual understanding prevail. If President Trump decides to treat Europe as an enemy, we will have no choice but to defend European industry, European jobs, European interests.”
Ross blamed insufficient progress in talks with Mexico and Canada over changes to the North American Free Trade Agreement (Nafta) for the US’s decision to slap tariffs on its two neighbours.
Mexico’s under-secretary of foreign trade, Juan Carlos Baker, tweeted: “Mexico categorically rejects any unilateral, protectionist measures that distort trade in North America.”
China, too, warned that it would respond with tit-for-tat action of its own.