The Trump administration’s plan to place tariffs on steel and aluminum sparked an outcry among major producing nations on Friday, with plunges across stock markets to match, fueling fears of an imminent tit-for-tat trade war.
After weeks of rumors and counterrumors about his administration’s intentions, President Donald Trump announced Thursday he would sign off on measures designed to protect national security and U.S. producers “next week.”
The tariffs — 25 percent on steel and 10 percent on aluminum — affect two materials that are the lifeblood of the construction and manufacturing sectors.
The announcement was greeted with fury from key U.S. trading allies, including Canada, the EU, Australia and Mexico.
Tokyo on Friday defended Japan’s exports of steel and aluminum to the U.S. in the wake of Trump’s announcement.
“We don’t think imports from Japan, an ally, have any effect at all on U.S. national security,” Economy, Trade and Industry Minister Hiroshige Seko told a news conference.
Trump has not said which countries will be subject to the tariffs, and Japan hopes an exception will be made.
Seko said Japan will communicate its stance to the U.S. while gathering more information about the proposed tariffs. “The full picture and details of these measures are still completely unclear,” he said.
Trump’s remark also caused jitters across global stock markets.
The benchmark Dow Jones Industrial Average lost as much as 2.3 percent on Thursday and Asian markets quickly followed suit. Tokyo, Hong Kong, Sydney and Seoul were all sharply down Friday afternoon with many major industrial giants hit particularly hard.
The 225-issue Nikkei average shed 542.83 points, or 2.50 percent, from Thursday, to end at 21,181.64.
Steel mills led losses with South Korea’s Posco, Japan’s Nippon Steel & Sumitomo Metal Corp., and the listed unit of China’s biggest producer, Baoshan Iron & Steel Co., all tumbling more than 4 percent. Aluminum smelters also slid with UACJ Corp. down 2.4 percent in Tokyo and China Hongqiao Group, the country’s biggest producer, sliding 2.5 percent.
Trump has long threatened to impose tariffs on steel and aluminum, accusing other countries of dumping and deploying “unfair” trade practices.
He has been particularly critical of China, although it does not export particularly large quantities of steel or aluminum to the U.S.
The timing of Trump’s announcement was provocative for Beijing — its top economic envoy Liu He was in Washington, holding meetings at the White House on Thursday.
China has previously warned it was ready with countermeasures should the Trump administration deploy tariffs, but there was no official response from Beijing by early Friday afternoon.
The U.S. administration has embarked on a campaign to renew American infrastructure, with steel likely a major input. But Trump’s announcement has faced significant domestic opposition, including from within the White House and his own party.
U.S. automakers, oil and gas producers and other industry groups publicly urged the president not to impose new trade barriers on the metal imports, warning that the measures could jack up prices and invite reprisals, harming the economy.
The auto industry warns that U.S. sales declines, which have become routine over the past year, may continue thanks to the tariffs Trump plans to slap on steel and aluminum imports.
Toyota Motor Corp., which plans to build a new $1.6 billion factory in Alabama together with Mazda Motor Corp., said the administration’s decision will “adversely impact” auto companies by raising costs and prices of cars and trucks sold in the U.S. That’s despite more than 90 percent of the steel Asia’s biggest carmaker needs in the U.S. being sourced within the country.
Trade groups representing automakers including General Motors Co. and Toyota, plus parts suppliers like Robert Bosch GmbH, tried to warn the Trump administration of unintended consequences before the president’s announcement. Asian automakers’ shares declined while U.S. carmakers — already slipping because of weak February sales — extended their drop after Trump’s comments.
“These proposed tariffs on steel and aluminum imports couldn’t come at a worse time,” said Cody Lusk, president of the American International Automobile Dealers Association. “Auto sales have flattened in recent months, and manufacturers are not prepared to absorb a sharp increase in the cost to build cars and trucks in America.”
Honda Motor Co., which declined to comment on the administration’s move, led the drop in shares of Asian carmakers.
Sources familiar with Trump’s decision say he faced stern opposition from aides, including top economic adviser Gary Cohn, who argued the move could ultimately damage U.S. industry.
Up to the last moment, there were doubts about whether Trump would pull the trigger.
But trade hawks like Peter Navarro — a presidential aide who, after weeks on the sidelines, was by the president’s side as he made his remarks — appeared to have won the day.
The same sources said it is not impossible that the shock announcement will be followed by carve outs that make the measures more palatable to allies in Europe, Canada and South Korea.
Trump’s decision, which leans on a rarely used trade provision allowing protections for national security, could also hit other countries far more than China, which has been the main target of the administration’s trade anger.
China is the world’s largest steel producer but accounts for less than one percent of U.S. imports, and sells only 10 percent of its wrought aluminum abroad. Steel producers in Canada, Brazil, Mexico, South Korea and Turkey rely far more heavily on the U.S. market.
The Commerce Department said last month it determined that the global glut of steel and aluminum threatened U.S. national security, and presented the White House with a set of options — including quotas, tariffs targeting specific countries, or across-the-board tariffs on all imports of aluminum and steel.
Trump’s proposal most closely resembled the last option.
Analysts said that while there were initial sharp stock market losses in the steel and aluminum sectors following the announcement, the main fear was what it could mean in the future.
“We think overall, the danger is contagion — the reaction — rather than the actual tariffs themselves,” Fat Prophets resources analyst David Lennox said.
“We don’t know the details yet and it’ll be the reaction of the countries where the tariff will be applied. Where or how will those countries retaliate? Because it will happen and that’s what people worry about.”