Trump softens steel tariffs with exemptions for ‘real friends’

Trump softens steel tariffs with exemptions for ‘real friends’

08/03/18 - 18:11 - Canada and Mexico given temporary carve-out while Nafta talks continue

Donald Trump formally adopted new tariffs on steel and aluminium imports on Thursday while allowing US allies to apply for exemptions, a sign of growing concern in Washington that the president was alienating America’s closest international partners.

“We have to protect and build our steel and aluminium industries, while at the same time showing great flexibility and co-operation towards those that are our real friends,” Mr Trump declared at the White House, flanked by steel workers.

“Our industries have been targeted for years and years by unfair foreign practices” — something that had led to “shuttered plants and mills” and “the decimation of entire communities. That’s going to stop,” he said. Mr Trump has said he will impose a 25 per cent penalty on steel imports and 10 per cent penalty on aluminium imports.

The tariffs, which will come into force within 15 days, are expected to lead to retaliation from the EU and other steel producers and heighten fears of a trade war. But the tariff regime was softened at the last minute to spare Canada and Mexico, albeit temporarily, while the US and its neighbours renegotiate the North American Free Trade Agreement.

“Due to the unique nature of our relationship with Canada and Mexico, we are negotiating Nafta — we are going to hold off the tariff, to see whether or not we are able to make a deal on Nafta,” Mr Trump said. The president’s two proclamations will create a process for countries with a close security relationship with the US to seek exemptions.

They will also enable the president to raise the tariffs or lower them on individual countries.

The president’s move on punitive tariffs is meant to fulfil a campaign promise to protect the US steel industry and bring back jobs to many of the blighted Rust Belt communities in swing states that helped elect him in 2016. It also comes ahead of a special election next week in a Pennsylvania congressional district that includes many communities once dependent on the steel industry.

The move came as Japan, Canada and nine other Pacific Rim countries signed a trade deal, vowing to push back against protectionist forces.

Mr Trump last year pulled the US out of the Trans-Pacific Partnership as one of his first acts as president. Since he announced the levies last week there has been controversy over which allies might be given carveouts. While the move is aimed at protecting the US steel and aluminium industries from China’s flooding of global markets with cheap metals in recent years, Canada, the EU, Japan and South Korea fear they will bear the brunt. Countries would be able to lobby the US for exemptions as long as they could show how their exports would not affect US national security, a senior administration official said.

With its common trade policy, the EU would have to apply as a bloc. Under US law, the tariffs are allowed only because they would protect domestic industry for national security purposes. That, however, raises problems under global trade rules as national security grounds are invoked only in exceptional circumstances.

Trade experts believe the US move could unleash similar actions by other countries. But Mr Trump believes that steel and aluminium are vital to the US defence industrial base and the broader economy, the senior administration official said.

“The rationale from the national security and economic security point of view is unassailable,” the official said. In his remarks, Mr Trump called the tariffs “very fair” to other countries. Yet by the same token, the tariff plan will force foreign governments to go cap in hand to Mr Trump for an exemption. It raises the possibility that some allies such as the EU or Japan could be excluded while others such as South Korea were not.

“You would have trouble thinking of a more aggressive way to offend our friends and allies,” said one former US official. The president’s tariff plan brought a sharp rebuke on Thursday from Mario Draghi, the European Central Bank president. Mr Draghi warned that rising protectionism was a threat to growth in Europe, adding that “unilateral decisions are dangerous”. “If you put tariffs against your allies, you wonder who your enemies are,” Mr Draghi said.

China’s foreign minister, Wang Yi, said any action aimed at Beijing would result in “a justified and necessary response”. He also warned that a cascade of trade protectionism risked hurting the global economy, and ultimately the US as well. “A trade war is never the right solution,” Mr Wang told reporters during the annual session of the National People’s Congress, China’s rubber-stamp legislature.

“The outcome will only be harmful to everyone.” Mr Trump has also faced a backlash from Republicans in Congress who have urged the president to take a more surgical approach to tackling the problem of China’s flooding of global markets with cheap steel. They also have expressed concerns that the new tariffs would amount to a tax rise on US businesses and consumers just as they were celebrating a victory in passing last year’s tax reform.

“We support your resolve to address distortions caused by China’s unfair practices, and we are committed to acting with you and our trading partners on meaningful and effective action,” more than 100 Republican members of Congress wrote in a letter to the president late on Wednesday. “But we urge you to reconsider the idea of broad tariffs to avoid unintended negative consequences to the US economy and its workers.”

Additional reporting by Courtney Weaver in Washington, Claire Jones in Frankfurt and Charles Clover in Beijing

 

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