As Trump touts trade restrictions, the world prepares to push back

Bloomberg, Kyodo, AP

After President Donald Trump said the U.S. plans to impose 25 percent tariffs on steel imports and 10 percent on aluminum, the shock waves are being felt around the world — Asia is up in arms, and the European Union and Canada are pushing back.

And there are plenty of forecasts that U.S. consumers are set to pay more for all sorts of purchases, from beer cans to autos.

While the exact form of the curbs remains unclear — especially whether U.S. allies will win exemptions — the reaction on Friday from outside the world’s biggest economy was largely negative. Beyond metals, the biggest risk is a tit-for-tat trade war that draws in other products such as foods.

Commerce Secretary Wilbur Ross indicated Friday that the stiff tariffs on steel and aluminum will cover all U.S. trading partners.

Asked whether the measure will cover all trading partners without exemption, Ross told the U.S. business news network CNBC, “That’s what the president seemed to announce yesterday.”

“Let’s assume that to be the case,” he said, increasing the likelihood that Japanese products will be affected, though the action’s main target is China.

During a meeting with U.S. steel and aluminum industry executives, Trump said he wanted the tariffs to apply to “all countries,” The New York Times reported in its Friday edition, quoting one executive in attendance. He said that if one country was exempt, all other countries would line up to ask for similar treatment, and metals could end up being shipped through exempted countries.

Last month, the Commerce Department said Trump could determine that certain countries should be exempted from steel and aluminum import curbs “based on an overriding economic or security interest of the United States,” suggesting he may exclude allies such as Japan, Canada and NATO countries from any action.

The Trump administration has said it wants to combat cheap metals flooding into the United States, particularly from China.

Trump said Thursday the import restrictions will be in effect “for a long period of time,” without elaborating.

‘Trade wars are good’

“When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win,” Trump said in a tweet Friday. He added: “when we are down $100 billion with a certain country and they get cute, don’t trade anymore — we win big. It’s easy!”

In a later post, he said his aim is to protect U.S. jobs in the face of cheaper foreign products. “We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!” he wrote.

Trump earned some bipartisan support from lawmakers, mainly from Rust Belt states. But his decision also has provoked rarely seen urgency among Republican lawmakers, who are scrambling to convince him he would spark a trade war that could stall the economy’s recent gains if he doesn’t reverse course.

The issue pits Trump’s populist promises against GOP trade orthodoxy and the interests of business leaders. Unlike recent immigration and gun policy changes that require legislation, Trump can alter trade policy by executive action. That intensifies the pressure on congressional Republicans to change his mind before he gives final approval for the penalties as early as the coming week.

House Speaker Paul Ryan called Trump after the president’s surprise announcement, and continues to hope the White House will reconsider the decision. Some top lawmakers are appealing to his desire for a robust stock market and warning the tariffs could unravel some of the gains they attribute to the tax bill he signed last year.

‘Negative chain reaction’

The chairman of the Japan Iron and Steel Federation sent a letter on Friday to Trump, urging him not to impose tariffs on steel and risk triggering a trade war.

“It is likely that U.S. actions … will create a negative chain reaction affecting not only steel but also other products considered to have national security implications, with other countries taking similar sections under similar pretenses,” said the letter, signed by Chairman Kosei Shindo.”We sincerely ask you to consider these issues and strongly hope that you will exercise fair and sound judgment not to impose tariffs or other restrictions on imported steel,” the letter said.

Europe to hit back

The European Union — the world’s largest trade bloc — signaled that its response to Trump will involve a combination of tit-for-tat retaliation, “safeguard” measures to prevent a flooding of the EU market with steel diverted from the U.S. and a complaint to the World Trade Organization.

European Commission spokesman Alexander Winterstein said the bloc’s executive arm will discuss potential countermeasures on Wednesday. “We are going to do this according to the rule book,” Winterstein told reporters in Brussels. “But we are going to make sure that we are effective and also firm.”

Trump’s plan to curb U.S. imports of steel on national-security grounds threatens the foundations of the World Trade Organization, warned the European Steel Association.

“This whole issue can blow up the WTO,” Axel Eggert, the industry group’s director general, said in an interview in Brussels. “This is not about national security. This is about propping up a U.S. industry that isn’t viable.” He urged Trump to rethink his tariff plan and work with the EU to curb steel overcapacity in China, the biggest producer.

National security as an excuse for protectionism is not constructive, Norway’s Foreign Ministry also said. The White House got this far by using Section 232 of the Trade Expansion Act of 1962, which permits the government to explore whether imports undercut national security.

In Berlin, Chancellor Angela Merkel’s chief spokesman said the German government opposes Trump’s plans. “Such tariffs will severely impact our steel and aluminum industry,” Steffen Seibert told reporters.

Germany’s benchmark DAX index plunged on the potential impact of the U.S. tariffs on Europe’s biggest economy, a manufacturing and exporting powerhouse.

Chinese President Xi Jinping’s top economic adviser told U.S. business leaders in Washington on Friday that China hopes the White House will revive high-level dialogue on economic disputes and name a new chief liaison to defuse mounting trade tensions, a person briefed on the matter said.

The adviser, Liu He, said he will take charge of reform efforts this month and wants a list of U.S. demands for what China could do to ease tensions.

Liu was speaking at an event with executives including former Treasury Secretary Hank Paulson and the CEOs of JP Morgan Chase and chipmaker Qualcomm.

The requests were part of the conciliatory message that Liu was tasked with bringing to the United States, China’s largest trading partner. Instead, his trip was overshadowed by Trump’s announcement of new tariffs.

Trump’s move could have a “huge impact” on the industry, according to Axel Eggert, the director general of Europe’s steel lobbying group Eurofer. Steel-makers are concerned that product destined for the U.S. could now be diverted. While China’s overcapacity has caused problems in the global steel industry, Europe, as one of the U.S.’s closest allies shouldn’t be targeted too, he said.

Steel-maker ArcelorMittal said governments have a legitimate reason to use a “tough approach” to address unfair trade practices amid significant overcapacity in the steel industry. “The greater need, however, is to create a truly sustainable global steel industry, and the only way to do this is for steel-producing nations around the world to work together to address global overcapacity.”

Canada, Bahrain at risk

Moody’s Investors Service also weighed in. Canada and Bahrain could be the top losers, should they get caught in Trump’s net, according to Managing Director Marie Diron. At this stage, while there is no significant impact on the credit profiles of sovereigns, there is an important warning.

“Longer term, tariffs on steel and aluminum could signal a marked deterioration in global trade relations to the extent that they are followed by other measures from the U.S. and potential responses from other countries,” Diron said.

U.S. smelter restarts?

Trump’s push may mean U.S. aluminum smelters get a good deal busier. There is about 490,000 tons of idled capacity in the U.S. that could potentially restart, according to Mike Ferraro, who cites Harbor Intelligence data.

Ferraro is head of Melbourne-based Alumina Ltd., a producer of alumina and bauxite. Operations that could lift output include plants in Missouri, Kentucky and Washington state. However, some shuttered capacity is high-cost, so it is unclear how much of an impetus the tariffs will prove to be, Ferraro said.