Trade War Ramps up as Trump's Steel and Aluminium Tariffs Start

Increased US tariffs on steel and aluminium began on Wednesday amid President Trump’s push to reconfigure global trade.

Many countries in the Asia-Pacific were impacted – notably China, Japan, Vietnam, South Korea and Australia. Indeed, the tariffs have bruised ties with some of America’s closest allies in the region, as well as the European Union and Britain, most of whom had hoped for better solutions.

Donald Trump’s move to increase protections for American steel and aluminum producers restores effective global tariffs of 25% on all imports of the metals and extends the duties to hundreds of downstream products made from the metals, from nuts and bolts to bulldozer blades and soda cans.

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EU hits back, as US business confidence erodes

The move drew swift retaliation from Europe. And there could be significant domestic impacts for the US as well.

Trump’s hyper-focus on tariffs since taking office in January has rattled investor, consumer and business confidence and some economists fear they could cause a US recession and further lag on the global economy.

The European Commission, the executive arm of the European Union charged with coordinating trade matters, responded promptly, saying it would impose counter-tariffs on 26 billion euros ($28 billion) worth of US goods from next month.

“We are ready to engage in meaningful dialogue,” Commission President Ursula von der Leyen told reporters, adding she had tasked Trade Commissioner Maros Sefcovic to resume his talks to “explore better solutions with the US.”

“We firmly believe that in a world fraught with geoeconomic and political uncertainties, it is not in our common interest to burden our economies with such tariffs.”

Chinese steel sector facing major rejig

China’s foreign ministry said Beijing would take all necessary measures to safeguard its rights and interests. Beijing is still hoping that a summit between Xi and Trump, possibly in June, can minimize some of these trade blows.

China’s steel sector is in deep trouble. A YouTube report in December said more than 70 steel mills had collapsed and 100,000 workers laid off because of weak demand and falling prices stemming from the prolonged real estate slump and a plunge in foreign demand.

The industry is set to undergo a major rejig amid a transition to cleaner technology and trade tension over China’s gross “overcapacity” by Western nations and other trading partners.

China’s steelmakers have been accused of excessive production by many nations – Brazil, Canada, Indonesia and Turkey all hiked tariffs on Chinese steel over the past year, while Vietnam and South Korea both announced greater duties after Trump was elected, according to the New York Times.

China’s building boom created abundant housing for its 1.4 billion people, but left the country with “enough empty apartments for another 300 million people,” it said. After the real estate crash four years ago, steelmakers were forced to sell their output on the global market – and that has spurred a global steel trade backlash.

Beijing is reportedly planning to trim crude steel output to rein in oversupply and there is speculation details on steel output have been finalized and will be revealed later this week. Analysts say output could be cut by 50 million tons this year.

Chinese steel — Employees work next to steel wires at a plant in Dalian, Liaoning province. File photo: Reuters.

Allies not impressed

Meanwhile, Japan’s Chief Cabinet Secretary Yoshimasa Hayashi said the US tariffs could have a major impact on US-Japan economic ties.

Other close US allies such as Canada, Britain and Australia criticised the blanket tariffs, with Canada mulling reciprocal actions and Britain’s trade minister Jonathan Reynolds saying “all options were on the table” to respond in the national interest.

Australian Prime Minister Anthony Albanese, who faces an election in coming months, said the move was “against the spirit of our two nations’ enduring friendship” but ruled out tit-for-tat duties.

“Tariffs and escalating trade tensions are a form of economic self-harm, and a recipe for slower growth and higher inflation,” he told reporters.

The countries most affected by the tariffs are Canada, the biggest foreign supplier of steel and aluminium to the US, Brazil, Mexico and South Korea, which all have enjoyed some level of exemptions or quotas.

Sales of $7 billion worth of Chinese steel, processed by third countries and sold to the US, are at risk.

Mexico, Vietnam and Brazil have also imported growing quantities of Chinese steel. And last year, US steel imports from Vietnam surged 143% year-on-year. Vietnam topped others to account for 11.5% of China’s total steel exports, data from Chinese customs and the American Iron and Steel Institute showed.

Steelworkers happy, Canadians simmering

Trump initially threatened Canada with doubling the duty to 50% on its steel and aluminum exports to the US but backed off after Ontario province suspended a move to impose a 25% surcharge on electricity exports to the states of Minnesota, Michigan and New York.

That incident whip-sawed US financial markets already jittery over Trump’s broad tariff offensive. Asian markets were broadly steady on Wednesday, although Australia’s benchmark closed 9.6% below February’s record high.

The US Customs and Border Protection agency cut off imports qualifying for duty-free entry under quota arrangements well before the midnight deadline, saying in a bulletin to shippers that quota paperwork needed to be processed by 4:30pm local time on Tuesday at US ports of entry or the full tariffs would be charged.

The move was welcomed by US steel producers as restoring Trump’s original 2018 metals tariffs that had been weakened by numerous country exclusions and quotas and thousands of product-specific exclusions.

“By closing loopholes in the tariff that have been exploited for years, President Trump will again supercharge a steel industry that stands ready to rebuild America,” Steel Manufacturers Association President Philip Bell said.

“The revised tariff will ensure that steelmakers in America can continue to create new high-paying jobs and make greater investments knowing that they will not be undercut by unfair trade practices,” Bell added.

Carney to talk to Trump after swearing-in

Mark Carney, Governor of the Bank of England (BOE) attends a news conference at Bank Of England in London, Britain — Mark Carney (Reuters)

The escalation of the US-Canada trade war occurred as Prime Minister Justin Trudeau prepared to hand over power this week to his successor Mark Carney, who won the leadership race of the ruling Liberals last weekend.

On Monday, Carney said he could not speak with Trump until he was sworn in as prime minister. Trump repeated on social media he wanted Canada as “our cherished Fifty-First State.”

Canadian Energy Minister Jonathan Wilkinson told Reuters that Canada could impose non-tariff measures such as restricting oil exports to the US or levying export duties on minerals, if US tariffs persist.

Canada, with ample hydropower resources that has made primary aluminium production more cost-effective than in the US, has built a commanding position in the US aluminium market, as US smelters once revived by Trump’s tariffs have been idled.

China remains the number two supplier of aluminium and goods made from aluminium, but already faces high tariffs to counteract alleged dumping and subsidies, as well as a new 20% tariff that Trump has imposed over the past month over fentanyl trafficking.

Domestically, nerves are growing over Trump’s economic agenda. A small business survey on Tuesday showed sentiment weakening for a third straight month, fully eroding a confidence boost following Trump’s November 5 election victory. A survey of households by the New York Federal Reserve on Monday showed consumers growing more pessimistic about their prospects.