Tariff war heats up

President of the United States Donald Trump officially increased tariffs on all steel and aluminium imports to 25 per cent on Wednesday, promising that the taxes would help create US factory jobs at a time when his seesawing tariff threats are jolting the stock market and raising fears of an economic slowdown.

Trump removed all exemptions from his 2018 tariffs on the metals, in addition to increasing the tariffs on aluminium from 10 per cent.

The Republican president has put separate tariffs on Canada, Mexico and China, with plans to also tax imports from the European Union, Brazil and South Korea, starting on April 2.

The European Union announced its own countermeasures on Wednesday. European Commission President Ursula von der Leyen said that as the United States was “applying tariffs worth US$28 billion, we are responding with countermeasures worth €26 billion,” or about US$28 billion. Those measures, which cover not just steel and aluminium products but also textiles, home appliances and agricultural goods, are due to take effect on April 1.

Canada, the largest foreign supplier of steel and aluminium to the United States, responded with its own countermeasures.

It plans to impose retaliatory tariffs of CDN$29.8 billion (US$20.7 billion) starting today, Thursday, in response to the US taxes on the metals. Canada’s new tariffs would be on steel and aluminium products as well as US goods including computers, sports equipment and water heaters worth CDN$14.2 billion (US$9.9 billion).

“We will not stand idly by while our iconic steel and aluminium industries are being unfairly targeted,” said Canadian Finance Minister Dominic LeBlanc.

Canada’s new tariffs are in addition to its 25 per cent counter tariffs on CDN$30 billion (US$20.8 billion) of imports from the US that were put in place on March 4 in response to other Trump import taxes that he’s partially delayed by a month.

Trump told CEOs in the Business Roundtable on Tuesday that the tariffs were causing companies to invest in US factories. The eight per cent drop in the S&P 500 stock index over the past month on fears of deteriorating growth appears unlikely to dissuade him, as Trump argued that higher tariff rates would be more effective at bringing back factories.

“The higher it goes, the more likely it is they’re going to build,” Trump told the group. “The biggest win is if they move into our country and produce jobs. That’s a bigger win than the tariffs themselves, but the tariffs are going to be throwing off a lot of money to this country.”

While Trump’s tariffs could help steel and aluminium plants in the United States, they could raise prices for the manufacturers that use the metals as raw materials.

Moreover, economists have found, the gains to the steel and aluminium industries were more than offset by the cost they imposed on downstream manufacturers that use their products.

At these downstream companies, production fell by nearly US$3.5 billion because of tariffs in 2021, a loss that exceeded the US$2.3 billion uptick in production that year by aluminium producers and steelmakers, the US International Trade Commission found in 2023.

While Trump sees the tariffs as leading to more domestic factories, the prospect of higher prices, fewer sales and lower profits might cause some companies to refrain from investing in new facilities.

“If you’re an executive in the boardroom, are you really going to tell your board it’s the time to expand that assembly line?” said John Murphy, senior vice president at the US Chamber of Commerce.

The top steel exporters to the US are Canada, Mexico, Brazil, South Korea and Japan, with exports from Taiwan and Vietnam growing at a fast pace, according to the International Trade Administration. Imports from China, the world’s largest steel producer, account for only a small fraction of what the US buys.

The lion’s share of US aluminium imports comes from Canada.

AP