United States President Donald J. Trump set the stage for a trade war by slapping tariffs on steel and aluminum imports, daring other countries to retaliate and leading the European Union (EU) to warn that it would target iconic American brands.
In turn, the US president put the European auto industry in his sights.
Hours after Trump said in a Twitter message that “trade wars are good, and easy to win,” European Commission President Jean-Claude Juncker said the bloc was prepared to respond forcefully by targeting imports of Harley-Davidson Inc. motorbikes, Levi Strauss and Co. jeans and bourbon whiskey from the US.
Juncker’s threat heightened the prospects of a global free-for-all, as the World Trade Organization (WTO) said the potential of escalating tensions “is real” and the International Monetary Fund warned the restrictions would likely damage the US and global economy.
Trump tweeted last Saturday that “If the EU wants to further increase their already massive tariffs and barriers on US companies doing business there, we will simply apply a Tax on their Cars which freely pour into the US.”
Anger from Asia, Europe, Republicans
The president faces anger from manufacturers and trade partners in Asia and Europe, as well as from allies, such as Republican lawmakers, after announcing tariffs of 25 percent on imported steel and 10 percent on aluminum for “a long period of time.”
He’s expected to sign the formal order as early as the coming week after certain formalities are completed, Peter Navarro, director of the National Trade Council at the White House, said last Saturday in an interview on satellite radio.
Commerce Secretary Wilbur Ross said last Friday the president has chosen to impose the tariffs on all countries and products, dimming the hopes for nations, such as Australia still pressing for an exemption.
Trump in a tweet last Friday morning warned of more trade actions ahead, casting them as reciprocal taxes, a term he has used for imposing levies on imports from countries that charge higher duties on US goods than the US currently charges. “We will soon be starting RECIPROCAL TAXES so that we will charge the same thing as they charge us. $800 Billion Trade Deficit-have no choice!” Trump said in the tweet.
The president last Saturday derided “our ‘very stupid’ trade deals and policies” of the past. Other countries “laugh at what fools our leaders have been. No more!”
The aggressive stance stoked fears of an unchecked cycle of trade retaliation and roiled investors, who dumped stocks last Thursday.
After the decision on tariffs initially depressed global markets, US stocks pared losses of more than 1 percent last Friday, while Treasuries slumped with the dollar as the wave of selling sparked by the threat of a trade war eased.
The planned tariffs—justified on the basis that cut-price metal imports hurt both American producers and national security—now raise the prospect of retaliatory curbs on US exports and higher prices for domestic users.
To weaken international trade conventions
While the practical impact may yet turn out to be limited, the political environment for global trade has just taken a turn for the worse.
Trump’s actions “could lead to other trading partners taking similar actions and could ultimately weaken the international trade conventions, like WTO rules, more generally,” according to a Goldman Sachs Group Inc. research note
EU to retaliate
The EU is prepared to retaliate against select US imports in a way that would maximize political pressure on American leaders.
Harley-Davidson is based in House Speaker Paul Ryan’s home state of Wisconsin, while bourbon whiskey hails from Senate Majority Leader Mitch McConnell’s home state of Kentucky. San Francisco-based Levi Strauss is headquartered in House Minority Leader’s Nancy Pelosi’s district. The CEO of Germany’s Siemens AG was the latest to slam the tariff plan.
“After a great-tax reform aimed at creating jobs, now a lousy approach on fair trade,” Joe Kaeser said on Twitter last Saturday. “Not good for customers, not good for jobs. Not good for a free world.”
Muted China response
The official response in China, the world’s largest steel producer and the main target of the tariffs, was muted.
Foreign Ministry Spokesman Hua Chunying said in Beijing last Friday that China urges the US to follow trade rules.
Industry insiders were less restrained. The US measures “overturn the international trade order,” Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, said in a statement. “Other countries, including China, will take relevant retaliatory measures.”
Li Xinchuang, vice chairman of the China Iron and Steel Association, called the move “stupid.”
China has already launched a probe into US imports of sorghum, and is studying whether to restrict shipments of US soybeans—targets that could hurt Trump’s support in some farming states.
Threat to national security
While China accounts for just a fraction of US imports of the metals, it is accused of flooding the global market and dragging down prices.
US allies, seeing their industries threatened, responded with bafflement and dismay. Some also panned the idea that metal imports pose a threat to national security.
“Steel and aluminum imports from Japan, which is an ally, do not affect US national security at all,” Japan Trade Minister Hiroshige Seko told reporters in Tokyo last Friday. “I would like to convey that to the US when I have an opportunity.”
The impact of the step hinges in part on which nations will be affected, said Alex Wolf, senior emerging markets economist at Aberdeen Standard Investments in Hong Kong, who previously worked at the US State Department.
“Until we see the final scope of the tariffs and the response from global trading partners, it’s hard to say it’s the start of a tit-for-tat trade war,” Wolf said.