Canada and Mexico retaliated on Thursday after Washington imposed tariffs on steel and aluminium imports while the European Union had its own reprisals ready to go, reviving investor fears of a global trade war.
Germany’s Economy Minister said early yesterday the EU might look to coordinate its response with Canada and Mexico.
The tariffs, announced by Commerce Secretary Wilbur Ross, ended months of uncertainty about potential exemptions and suggested a hardening of the US approach to trade negotiations.
The measures, touted by President Donald Trump in March, drew condemnation from Republican lawmakers and the country’s main business lobbying group and sent a chill through financial markets.
The Dow Jones Industrial Average lost one per cent and the S&P 500 shed 0.69 per cent.
Shares of industrial heavyweights Boeing and Caterpillar both fell, with Boeing down 1.7 per cent and Caterpillar down 2.3 per cent. European shares opened higher, however.
Tariffs of 25 per cent on steel imports and 10 per cent on aluminium were due to be imposed on the EU, Canada and Mexico from midnight on Friday, Ross told reporters.
“We look forward to continued negotiations, both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved,” he said.
The tariffs are part of Trump’s effort to protect US industry and workers
Canada and Mexico, embroiled in talks with the US to modernise the North American Free Trade Agreement (Nafta), responded swiftly and German Economy Minister Peter Altmaier said the EU might team up with them.
“We tried to do it through negotiation and we will now do it by standing together and formulating a common European answer, possibly working more closely with Mexico and Canada,” he said, adding he hoped this would make Trump rethink.
Canada, the largest supplier of steel to the US, will impose tariffs covering C$16.6 billion (£9.6 billion) on imports from the US, including whisky, orange juice, steel, aluminium and other products, Foreign Minister Chrystia Freeland said.
“The American administration has made a decision today that we deplore, and obviously is going to lead to retaliatory measures, as it must,” Prime Minister Justin Trudeau told a with Freeland.
Trump issued a statement about the Nafta negotiations, saying the days of the US being taken advantage of on trade were over.
Mexico announced what it described as “equivalent” measures on a wide range of US farm and industrial products.
The EU members have given broad support to a European Commission plan to set duties on €2.8 billion of US exports if Washington ends tariff exemptions. EU exports potentially subject to US duties are worth €6.4 billion.
“It’s entirely up to US authorities whether they want to enter into a trade conflict with their biggest partner, Europe,” France’s Finance Minister, Bruno Le Maire, said after meeting with Ross on Thursday.
US Chamber of Commerce President Tom Donohue warned in a letter to the body’s board that current trade policies could threaten “economic progress” and cause the loss of more than two million jobs, mostly in states that voted for Trump and Republican candidates.
The tariffs are part of Trump’s effort to protect US industry and workers from what he described as unfair international competition, a key theme of his ‘America First’ agenda.
Temporary exemptions were granted to a number of nations and permanent ones to several countries including Australia, Argentina and South Korea. US trading partners had demanded that the exemptions be extended or made permanent.
The tariffs are aimed at allowing the US steel and aluminium industries to increase their capacity utilisation rates above 80 per cent for the first time in years.
The US administration also launched a national security investigation last week into car and truck imports, using the same 1962 law it has applied to curb incoming steel and aluminium.
“The Trump administration seems to regard overt threats, including tariffs and repudiation of previous agreements, as a key element for gaining leverage in trade negotiations,” said Eswar Prasad, a former head of the International Monetary Fund’s China division and now a professor at Cornell University.
The Trump administration has demanded that Beijing make concessions and threatened to punish it for allegedly stealing US technology by imposing tariffs on $50 billion of imports from China.
While China is seen at more risk from a trade war because its exports are larger than its imports from the US, operations of American companies in China make substantial sales there, which could be hit by any turn in sentiment.