Canada and Mexico retaliated against the US decision on Thursday to impose tariffs on steel and aluminum imports and the European Union had its own reprisals ready to go, reigniting investor fears of a global trade war.
The tariffs, announced by US commerce secretary Wilbur Ross in a telephone briefing on Thursday, ended months of uncertainty about potential exemptions and suggested a hardening of the Trump administration's approach to trade negotiations.
The measures, touted by president Donald Trump in March, drew condemnation from Republican lawmakers and the country's main business lobbying group and sent a chill through financial markets.
The Dow Jones Industrial Average lost 1 per cent and the S&P 500 shed 0.69 per cent. Shares of industrial heavyweights Boeing and Caterpillar both fell, with Boeing down 1.7 per cent and Caterpillar down 2.3 per cent.
Tariffs of 25 per cent on steel imports and 10 per cent on aluminum will be imposed on the EU, Canada and Mexico from midnight (0400 GMT on Friday), Ross told reporters.
‘We look forward to continued negotiations, both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved,’ he said.
Canada and Mexico, embroiled in talks with the United States to modernize the North American Free Trade Agreement, responded swiftly.
Canada, the largest supplier of steel to the United States, will impose tariffs covering C$16.6 billion ($12.8 billion) on imports from the United States, including whiskey, orange juice, steel, aluminum and other products, foreign minister Chrystia Freeland said.
‘The American administration has made a decision today that we deplore, and obviously is going to lead to retaliatory measures, as it must,’ prime minister Justin Trudeau said at a news conference with Freeland.
Late on Thursday, Trump issued a statement about the NAFTA negotiations, saying the days of the United States being taken advantage of on trade were over.
‘Earlier today, this message was conveyed to prime minister Justin Trudeau of Canada: The United State will agree to a fair deal, or there will be no deal at all,’ Trump said.
Mexico announced what it described as ‘equivalent’ measures on a wide range of US farm and industrial products.
The measures, which target pork legs, apples, grapes and cheese as well as steel and other products, will be in place until the US government eliminates its tariffs, Mexico's Economy Ministry said.
The S&P 500’s packaged foods and meats industry sub-index fell 2 per cent, with shares of meat producer Tyson Foods Inc falling 3.9 per cent, Campbell Soup Co 2.6 per cent and spice maker McCormick & Co Inc 2.9 per cent.
The Mexican peso dropped about 1 per cent, hitting its weakest level against the dollar in nearly 15 months, and the Canadian dollar shed about 0.6 per cent.
The EU threatened tariffs on Harley Davidson motorcycles and bourbon, measures aimed at the political bases of US Republican legislators. Shares of Harley-Davidson Inc fell 2.2 per cent and Brown-Forman Corp, maker of Early Times and other bourbon brands, lost 2.1 per cent.
EU members have given broad support to a European Commission plan to set duties on 2.8 billion euros ($3.4 billion) of US exports if Washington ends tariff exemptions. EU exports potentially subject to US duties are worth 6.4 billion euros ($7.5 billion).
‘It's entirely up to US authorities whether they want to enter into a trade conflict with their biggest partner, Europe,’ France's finance minister, Bruno Le Maire, said after meeting with Ross on Thursday.
US Chamber of Commerce president Tom Donohue warned in a letter to the body's board, and seen by Reuters, that current trade policies could threaten ‘economic progress’ and cause the loss of more than 2 million jobs, mostly in states that voted for Trump and Republican candidates.
The tariffs are part of Trump's effort to protect US industry and workers from what he described as unfair international competition, a key theme of his ‘America First’ agenda.
Temporary exemptions were granted to a number of nations and permanent ones to several countries including Australia, Argentina and South Korea. US trading partners had demanded that the exemptions be extended or made permanent.
The tariffs are aimed at allowing the US steel and aluminum industries to increase their capacity utilization rates above 80 percent for the first time in years.
Shares of US Steel Corp rose 1.7 per cent, but AK Steel fell 1.3 per cent and Steel Dynamics Inc shed 0.9 per cent. Shares of Century Aluminum Co jumped 3.3 per cent but Alcoa Corp shed 0.9 per cent.
The US administration also launched a national security investigation last week into car and truck imports, using the same 1962 law it has applied to curb incoming steel and aluminum.
‘The Trump administration seems to regard overt threats, including tariffs and repudiation of previous agreements, as a key element for gaining leverage in trade negotiations,’ said Eswar Prasad, a former head of the International Monetary Fund's China division and now a professor at Cornell University.
Prasad warned that the United States was doing so at the cost of alienating key allies and undercutting broad international pressure on China to change its trade and economic practices.
Ross himself heads to Beijing on Friday where he will attempt to get firm deals to export more U.S. goods in a bid to cut America's $375 billion trade deficit with China.
The Trump administration has demanded that Beijing make concessions and threatened to punish it for allegedly stealing US technology by imposing tariffs on $50 billion of imports from China.
While China is seen at more risk from a trade war because its exports are larger than its imports from the United States, operations of American companies in China make substantial sales there, which could be hit by any turn in sentiment. ($1 = 0.8575 euros) ($1 = 1.2964 Canadian dollars
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