This morning, the Trump administration announced it will impose tariffs of 25% on steel and 10% on aluminum on countries within the European Union, as well as Canada and Mexico. The decision hit the stock markets immediately following the announcement, with the Dow falling about 250 points.
The big picture: Trump's trade war now extends far beyond China, and is hitting the U.S.' closest allies, all while NAFTA negotiations with Canada and Mexico continue.
What to expect
- Domestic and imported steel and aluminum prices could spike.
- Retaliatory measures could take effect almost immediately, and increase the likelihood of a broader trade war.
- So far, the only country that has actively retaliated against the U.S. on these steel and aluminum tariffs is China — but now others are making threats. Should the EU decide to retaliate, that would effectively give cover for other WTO members to do the same.
Retaliation on the horizon
- EU Commission president Jean-Claude Juncker said the EU has "no choice" but to retaliate — with previously floated targets including Harley Davidson motorcycles and Kentucky bourbon — while Mexico has already announced it will hit "pork bellies, grapes, apples and flat steel," per the AP.
- Canada will impose its own tariffs against American steel, aluminum, and other products in the amount of $16.6 billion at rates of 25% and 10%, that will go into effect on July 1, remaining until the U.S. ends its own tariffs.
- Mexico’s Economy Ministry said "it would target several U.S. goods in response, including some steel and pipe products, lamps, berries, grapes, apples, cold cuts, pork chops and various cheese products “up to an amount comparable to the level of damage” linked to the U.S. tariffs," per WSJ.
Domestic response: Not promising
- Nebraska Sen. Ben Sasse said, "This is dumb. ...We've been down this road before — blanket protectionism is a big part of why America had a Great Depression. 'Make America Great Again' shouldn't mean 'Make America 1929 Again.'"
- Pennsylvania Sen. Pat Toomey said it was "bad news" that Trump wanted to "impose taxes on American consumers" who choose to do business with America's "closest allies."
- Virginia Sen. Tim Kaine tweeted: "I don’t know about you, but occasionally I like to crack open a cold one on a hot day. President Trump’s aluminum tariffs may raise the price of beer, just as we head into summer—costing you more at the store, and hurting the U.S. economy."
- "The tariffs make good on Mr. Trump’s threats and show the administration is maximizing pressure to win concessions from allies," writes WSJ.
- "It’s worth keeping some perspective on the direct, immediate damage from the tariffs and likely retaliation from trading partners. Prices for inputs like steel move around all the time, and businesses are generally pretty good at adapting. Those supply chain managers and logisticians are good at their jobs," explains NYT.
- Goldman Sachs economists told CNBC, "the Administration's negotiating stance is often unpredictable so there is a risk of over-interpreting any single event. That said, this represents another signal that prospects for a near-term NAFTA deal are fading, just a few weeks after it had appeared fairly likely that a "skinny" agreement involving the auto sector might be reached."
The bottom line: Europe is already furious with Trump over his Iran deal decision. This will only deepen the divide, Célia Belin of Brookings told Axios' Dave Lawler: "It's one thing to take a decision that disregards European interests. It's another thing to take a decision that attacks European interests."