May 31, 2018

U.S. to slap steel and aluminum tariffs on European Union

Donald Trump leaves after a meeting with EU officials at EU headquarters. Photo: THIERRY CHARLIER / AFP / Getty Images

Plans for the Trump administration to hit the European Union with steel and aluminum tariffs could be announced as early as Thursday, reports the Wall Street Journal citing people familiar with the matter.

Why it matters: The EU has threatened retaliatory tariffs on U.S. products such as "motorcycles, jeans and bourbon." The report follows Commerce Secretary Wilbur Ross' criticism that the European Union isn't negotiating on trade thanks to the United States' steel and aluminum tariffs, citing China as a counterexample.

What to expect: If the tariffs go through, you'll see domestic and imported steel and aluminum prices spike because the EU is a top supplier. 

  • The EU will likely retaliate almost immediately. They’ve already filed what they plan to do — their list of retaliatory measures — at the World Trade Organization (WTO.) The EU’s big public threats are tariffs on Harley Davidsons and Kentucky whiskey (targeting Paul Ryan and Mitch McConnell respectively.)

The snowball effect: The U.S. imposing tariffs would likely have knock on effects. Until now, the only country that has directly retaliated against the U.S. on these steel and aluminum tariffs is China. Add in to the mix other countries who have made threats but haven’t retaliated — yet.

  • If the EU were to retaliate, that move would effectively give a green light for other WTO members to retaliate. Nobody wants to be considered a bad actor — but if the EU does it, they’re considered a good global actor, so others are more likely to follow.

The big questions: What does the U.S. do to fight back? Does the trade war blow out beyond steel and aluminum? Every time the countries keep poking each other, there’s an increased threat of escalation, which would potentially spark a much wider conflict.

Be smart: We already have the specter of automobiles, with Trump’s threat to put a 25% tariff on autos. So far, WTO members have been restrained with respect to Trump’s steel and aluminum tariffs. This could easily change if the EU goes on the offensive. 

The other player: What happens with NAFTA negotiations? Trump has exempted Canada and Mexico from steel and aluminum tariffs to incorporate the NAFTA dealing. The deadline for the exemption comes up June 1. Trade experts watching this assume Trump will grant Canada and Mexico an extension to their exemptions, but nothing is certain.

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