The Trump administration has begun a battle royal with some key U.S. allies over steel and aluminum tariffs after moving to lift temporary exemptions on tariffs for the European Union, Canada and Mexico, intensifying a trade dispute that could hit a broad swath of industries.
The 25% tariff on U.S. steel imports and 10% tariff on aluminum imports will go into effect at midnight for Canada, Mexico and the European Union, U.S. Commerce Secretary Wilbur Ross told reporters May 31. The two North American Free Trade Agreement partners and the 28-country trading bloc had been provided temporary exemptions that expire June 1, and President Donald Trump decided to not renew those exemptions, Ross said.
Reactions from the European Union and Mexico were swift. The EU was set to go to the World Trade Organization, while Mexico threatened equivalent measures against the U.S. Canada announced its own retaliatory tariffs against U.S. products worth C$16.6 billion and said it would also pursue WTO action.
The tariffs, which Trump had imposed March 23, went into effect on most countries, but exemptions were granted to Canada and Mexico as the negotiations over NAFTA continued. Those talks stalled in recent weeks as negotiators were unable to reach an agreement ahead of the mid-May deadline that Speaker of the House Paul Ryan, R-Wis., set.
"The reason for the deferral had been pending the outcome of the NAFTA talks," Ross said. "Those talks are taking longer than we had hoped. There no longer is a very precise date when they may be concluded, and therefore they were added into the list of those who will bear tariffs."
"I believe it's been made very clear by the European Commissioner for Trade [Cecilia] Malmström that the European Commission — as a precondition of the discussion — that they be exempted permanently and unconditionally from these tariffs," Ross said. "We were not prepared to meet that position."
Ross said retaliation from the EU, Mexico and Canada does not mean that the situation cannot be remedied.
"Even if any of the parties retaliate, that does not mean there cannot be continued negotiations. There is the potential for discussion of a variety of trade issues with the EU."
The EU has threatened on a number of occasions to retaliate against the steel and aluminum tariffs, including against U.S. exports such as orange juice, motorcycles, dairy products and bourbon.
Harley-Davidson Inc., which the EU specifically mentioned as a target for reprisals, was down more than 2% in midday trading.
"We are currently evaluating our options for managing anticipated cost increases following today's announcement," company spokesman Michael Pflughoeft said in an email to S&P Global Market Intelligence. "Additionally, we believe a punitive, retaliatory tariff on Harley-Davidson motorcycles in other major markets would have a significant impact on our sales, our dealers, our suppliers and our customers in those markets."
Ross said Trump can use unilateral action to reverse any of the exemptions or impositions.
"He has the flexibility to change all the parties, not just Canada, Mexico and the European Commission," he said. "As to those, we should see what their reaction is to the decision made by the president today. We continue to be quite willing and eager to have further discussions with all of those parties. We are awaiting their reaction."
The Trump administration has said the steel and aluminum tariffs are a national security measure meant to protect domestic industries that it says have been decimated by the dumping of foreign metals. This dumping poses a national security risk due to the country's reliance on imported metals for military purposes, the administration has said. Such a security risk enabled Trump, after an investigation by the U.S. Department of Commerce, to impose the tariffs under section 232 of the Trade Expansion Act of 1962.
The U.S., as part of the revised United States-Korea Free Trade Agreement agreed to in March, exempted South Korea from the 25% steel tariff, instead subjecting the Asian nation to a product-specific quota equivalent to 70% of the average annual import volume between 2015 and 2017. It is still subject to the aluminum tariffs.
Arranged limitations on the volume of steel and aluminum shipped to the U.S. from Argentina, Australia and Brazil were also put in place in lieu of tariffs.
"While they're exempted from the tariffs, they will be subject to constraint, and therefore we believe this combined package achieves the original objectives we had set out, which were to constrict the imports of steel and aluminum to a level that would allow these industries to operate domestically on a self-sustaining basis as we go forward," Ross said.
Mexico responded immediately, with its Ministry of Economy announcing in a news release that it would impose "equivalent measures" on U.S. exports, encompassing products including flat steel, lamps, certain pork products and food preparations, apples, grapes, blueberries and cheeses. Mexico said those tariffs would continue until the U.S. exempts Mexico from the steel and aluminum tariffs.
"Mexico has repeatedly indicated that this type of measures under the criterion of national security are not adequate or justified," the ministry said in the statement.
Canada also hit back with its own retaliatory measures, threatening tariffs on U.S. exports valued at C$16.6 billion, reciprocal to the value of the Canadian exports targeted by the Trump administration.
One list of American products, including mainly steel exports, would be slapped with 25% tariffs, according to Canadian Minister of Foreign Affairs Chrystia Freeland, while another list of products that includes coffee, whiskies, mattresses, plywood, yogurt, aluminum and other consumer products, would be hit with 10% tariffs. The Canadian tariffs, set to go into effect July 1, will be subject to a 15-day public review and comment period, Freeland said.
Jean-Claude Juncker, president of the European Commission, said in a statement that the bloc would pursue World Trade Organization action.
The EU believes that these unilateral U.S. tariffs are unjustified and at odds with World Trade Organization rules, Juncker said. "The U.S. now leaves us with no choice but to proceed with a WTO dispute settlement case and with the imposition of additional duties on a number of imports from the U.S."
The yield on the benchmark 10-year U.S. Treasury fell on the news, hitting a low of 2.822% in the morning before rebounding to 2.860% as of 4:45 p.m. ET. The S&P 500 Index fell 0.69%.
