WASHINGTON: President Donald Trump announced on Thursday he would impose hefty tariffs on imported steel and aluminum to protect U.S. producers, risking retaliation from major trade partners like China, Europe and neighboring Canada as well as helping to trigger a large selloff on Wall Street.
Trump said the duties of 25 percent on steel and 10 percent on aluminum would be formally announced next week although White House officials later said some details still needed to be ironed out.
Trump believes the tariffs will safeguard American jobs but many economists say the impact of price increases for consumers of steel and aluminum, such as the auto and oil industries, will be to destroy more jobs than they create.
"We’re going to build our steel industry back and our aluminum industry back," he said.
News of the tariffs drove the stocks of U.S. domestic steel and aluminum makers sharply higher, but also hit sentiment on Wall Street due to the potential impact of higher costs on consumers.
The move came after what one person with direct knowledge of the discussions described as a night of "chaos" in the White House due to frequent switching of positions in the administration.
The threat of tariffs was sharply criticized by some senior Republican legislators as well as industries from autos to oil whose input costs will rise. A major concern is that U.S. farm exports could be hit hard in retaliation by steel-exporting countries.
RETALIATION
"Every time you do this, you get a retaliation. Agriculture is the number one target. I think this is terribly counterproductive for the agriculture economy," said Senator Pat Roberts, who chairs the chamber's agriculture committee.
China has already threatened to curb imports of U.S. soybeans, while the European Union has said it will consider action as well. China's top trade official Lui He is in Washington for trade talks.
The move will not directly hit China that hard, with data showing that Canada supplies 16 percent of U.S. demand versus China's 2 percent and is by far the largest steel exporter followed by Brazil and South Korea.
"Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers," Foreign Affairs Minister Chrystia Freeland said in a sharply worded statement.
Brazil's industry ministry said it would consider taking action on its own over the tariffs or in concert with other countries. Two of its largest steelmakers, Cia Siderurgica Nacional and Usiminas sold off on the tariff news, closing down 4.4 percent and 4.2 percent, respectively.
Washington is already engaged in a dispute with Canada and Mexico over its proposed revision to the North American Free Trade Agreement and months of tense talks have failed to produce any meaningful progress.
Asked whether there would be exemptions for any countries, White House spokeswoman Sarah Sanders said she would not get into any details ahead of next week’s announcement. She said the tariffs were still being finalized.
After Trump's statement, AK Steel Holding was up almost 10 percent, U.S. Steel Corp was up over 5 percent and Nucor rose 3.2 percent. By contrast shares of steel consumers fell with Ford Motor Co down over 3 percent and General Motors Co down almost 4 percent.
The administration says duties would protect U.S. industry, but critics say they would raise costs for industry and fail to deliver on a campaign pledge to boost domestic jobs.
Trump’s decision reflected a victory for the trade hawks in his administration, including White House trade adviser Peter Navarro, who has been rising in importance, and a setback for those who fear the repercussions of the move, such as top economic adviser Gary Cohn.
It had appeared unlikely that Trump would announce the tariffs on Thursday after a night of back and forth inside the administration.
"There was a lot of movement within the past 12, 16 hours," said the source who had knowledge of the discussions, but who declined to be named due to the sensitivity of the issue.
"It was going to happen. It wasn’t going to happen and then it did happen."
The administration has also cited national security interests for its action, saying the United States needs domestic supply for its tanks and warships. Contrary to the action announced by Trump on Thursday, the Department of Defense had recommended targeted steel tariffs and a delay in aluminum duties.
Although China only accounts for two percent of U.S. steel imports, its massive industry expansion has helped produce a global glut of steel that has driven down prices.
Trade tensions between the United States and China have risen since Trump took office in 2017 and the administration is also pushing on what it regards as forced technology transfers to China.
FEW MORE JOBS FROM TARIFFS
While American steelmakers have lost three quarters of their jobs between 1962 and 2005, a major study by the American Economic Association showed that much of this had been due to improved production technology as output per worker rose fivefold.
"Thus, even if trade protection leads to increased domestic production, increases in employment may be far less than many hope," a report from the independent Econofact economist network said last week.
Econofact said in its report that two million jobs were in industries that use steel "intensively", including auto parts, household appliances, farm machinery and oil equipment.
"Across many states, the number of jobs adversely affected in these steel-using industries could far exceed any steel jobs saved," Econofact warned.
The overall impact on the U.S. economy is likely to be muted, barring a major trade war, with steel and aluminum imports accounting for just two percent of the overall total.
Investment bank Barclays estimated the tariffs would add 0.1 percentage point to core inflation over a period of time and cut economic growth by 0.1-0.2 percentage points, which would be more than offset by Trump's fiscal stimulus. - Reuters
* Canada will retaliate against any U.S. tariffs on steel and aluminum products, officials said on Thursday, as Ottawa faced what could be one of the biggest economic threats since Donald Trump became President.
Trump unveiled the tariffs on Thursday but did not make clear whether they would apply to Canada and Mexico, which together with the United States are trying to renegotiate the NAFTA trade deal.
"Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers," Foreign Minister Chrystia Freeland said in a statement, calling any trade restrictions "absolutely unacceptable."
She did not give details and Canadian officials were not immediately available for comment.
Canada buys more American steel than any other country, accounting for 50 percent of U.S. exports, and the steel and aluminum industry is highly integrated, Freeland added.
Miner Rio Tinto said it would continue to engage with U.S. officials to underscore the benefits of the integrated North American aluminum supply chain. Canada is the world's largest supplier of aluminum to the United States.
“Aluminum from Canada has long been a reliable and secure input for U.S. manufacturers – including the defense sector,” Rio said in a statement.
The Trump administration - which Freeland generally describes as the most protectionist since the 1930s - has sought to impose tariffs on Canadian softwood lumber and airliners over the last year.
Canada pushed back on both occasions and won a victory in January when a U.S. tribunal rejected Boeing Co calls for punitive duties against Bombardier Corp passenger jets.
"We will always be there to defend workers and industry. We showed it on softwood lumber and showed it with the Boeing case," Trade Minister Francois-Philippe Champagne told reporters in Ottawa.
CIBC economists Royce Mendes and Avery Shenfeld said the tariffs "could be more biting for the Canadian economy than previous moves by the administration" and noted the prospects for retaliation were limited.
"In many cases, Canada doesn't have a domestic source of supply that would benefit from hitting U.S. goods with a tariff," they said in a note to clients. Canada sends 75 percent of its goods exports to the United States.
International trade lawyer Mark Warner said Canada could if it wished apply tariffs on steel or aluminum or other targeted products.
"My hope is that the government does not respond precipitously in tone or action and continues to work for an exemption," he said by e-mail.
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