Trade war escalates as Trump’s 25% metal tariffs take effect

Tariffs imposed by US President Donald Trump on imports of steel and aluminium have taken effect in a move that will likely escalate tensions with some of America’s largest trading partners.

The measure raises a flat duty on steel and aluminium entering the US to 25% and ends all country exemptions to the levies.

It sparked an immediate response from the European Union which said it will impose counter tariffs on billions of euros of US goods.

Trump hopes the tariffs will boost US steel and aluminium production but critics say it will raise prices for US consumers and dent economic growth.

The American Iron and Steel Institute (AISI), a group representing US steelmakers, welcomed the tariffs saying they will create jobs and boost domestic steel manufacturing.

The group’s president Kevin Dempsey said the move closed a system of exemptions, exclusions and quotas that allowed foreign producers to avoid tariffs.

“AISI applauds the president’s actions to restore the integrity of the tariffs on steel and implement a robust and reinvigorated program to address unfair trade practices,” Mr Dempsey added.

The US is a major importer of aluminium and steel, and Canada, Mexico and Brazil are among its largest suppliers of the metals.

Other countries responded immediately to the move.

The UK’s Trade Minister Jonathan Reynolds said he was disappointed and “all options were on the table” to respond in the national interest.

The European Commission said in a statement it is imposing counter tariffs on 26 billion euros (£21.9bn, $28.3bn) worth of US goods.

Australia’s Prime Minister, Anthony Albanese, said the Trump administration’s decision to go ahead with the new tariffs is “entirely unjustified”.

“It’s against the spirit of our two nations’ enduring friendship and fundamentally at odds with the benefits that our economic partnership has delivered over more than 70 years,” he added.

Albanese, who had been trying to secure an exemption to the tariffs, also said Australia will not be imposing retaliatory duties because such a move would only drive up prices for Australian consumers.

Meanwhile, Canada’s Energy Minister, Jonathan Wilkinson, told CNN his country would retaliate but added that Canada is not looking to escalate tensions.

Canada, is one of America’s closest trade partners, and the largest exporter of steel and aluminium to the US.

In 2018, during his first term as president, Trump imposed import tariffs of 25% on steel and 10% on aluminium, but carve-outs were eventually negotiated for many countries.

This time the Trump administration has signalled that there will be no exemptions.

The tariffs mean that US businesses wanting to bring the metals into the country will have to pay a 25% tax on them.

This is likely to lead to higher costs for a large number of US industries, including aerospace, car manufacturing and construction.

Michael DiMarino runs Linda Tool, a Brooklyn company that makes parts for the aerospace industry. Everything he makes involves some kind of steel, much of which comes from American mills.

“If I have higher prices, I pass them on to my customers. They have higher prices, they pass it on to the consumer,” Mr DiMarino said, adding that he supports the call for increased manufacturing in the US but warning the president’s moves could backfire.

The American Automotive Policy Council, a group that represents car giants such Ford, General Motors and Stellantis, also echoed such worries.

The organisation’s president, Matt Blunt, said they “are concerned that specifically revoking exemptions for Canada and Mexico will add significant costs” to car makers’ suppliers.

Some economists are warning that the tariffs could help the US steel and aluminium industries but hurt the wider economy.

“It protects [the steel and aluminium] industries but hurts downstream users of their products by making them more expensive,” said Bill Reinsch, a former Commerce Department official, who is now at the Center for Strategic and International Studies.

Fear of the economic cost of Trump’s trade tariffs have sparked a selloff in US and global stock markets which accelerated this week after the US president refused to rule out the prospect of an economic recession.

The S&P 500 index of the largest firms listed in the US fell a further 0.7% on Tuesday after dropping 2.7% on Monday, which was its biggest one-day drop since December.

The UK’s FTSE 100 share index, which had edged lower earlier on Tuesday, fell further and closed down more than 1%. The Cac 40 in France and Germany’s Dax also fell.

Meanwhile, research firm Oxford Economics, said in a report it had lowered its US growth forecast for the year from 2.4% to 2% and made even steeper adjustments to its outlook for Canada and Mexico.

“Despite the downgrade, we still expect the US economy to outperform the other major advanced economies over the next couple of years,” its report added.

“Uncertainty around the path for US tariffs is higher than ever.”

Earlier on Tuesday, the US and Canada stepped back from the brink of a major escalation in the trade war.

That was after Trump said he had halted a plan to double US tariffs on Canadian steel and metal imports to 50%, just hours after first threatening them.

The move by the president came after the Canadian province of Ontario suspended new charges of 25% on electricity that it sends to some northern states in the US.

Despite the climbdown, Canada will still be facing Trump’s 25% tariffs on steel and aluminium imports that have just come into effect.

Additional reporting by Michelle Fleury in New York