Trump Doubles Down on Trade Fight with Allies

Posted on 14th June 2018

President Donald Trump has doubled down on his decision to pick trade fights with close US allies, targeting steel, aluminium, and potentially automobile components for new tariffs.  The actions are a serious escalation of the new US administration’s efforts to confront what it sees as unfair trading practices and unduly restrictive international rules.

On 31 May, Secretary of Commerce Wilbur Ross announced that the US would impose a 25% tariff on most steel imports and a 10% tariff on most aluminium imports from Canada, Mexico, and the European Union, beginning 1 June.  The tariffs were implemented under so called “Section 232” authority, which allows the President to raise tariffs in response to national security threats.  The US had previously imposed these tariffs on all other countries beginning 23 March, with a few negotiated exceptions for Australia, Argentina, Brazil, and South Korea.

Canada, Mexico, and the EU negotiating with the US to secure their own exemptions.  However, in announcing that the US would not extend their temporary forbearance any further, Secretary Ross argued that these talks had been fruitless.  Several other close partners, such as Japan, were also unable to secure exemptions. The move caught these US allies by surprise, who objected to the notion that they could constitute a threat to US national security.  Canada, Mexico, and the EU have all launched WTO challenges to the tariffs, joining similar cases brought by India and China. Japan has publicly mulled doing so as well.

The two US neighbors and the European trade block also responded with carefully prepared retaliation lists, targeting an array of US goods. These lists have a heavy focus on agriculture, as well as certain products associated with legislative districts of key Congressional leaders, such as a new tariff on Bourbon, associated with Kentucky, Senate Majority Leader Mitch McConnell’s home state.

Last week at the G7 in Canada, Trump doubled down on attacking allies.  Alternately offering to drop all trade barriers and threatening to sever all trade ties with his counterparts, he accused them and other countries of “robbing” the US “like a piggy bank.”  The President left the summit early, refusing to sign the traditional joint declaration, citing some sharp words from host Prime Minister Justin Trudeau regarding NAFTA talks and steel and aluminium tariffs as a “betrayal.”

Turning on US allies in this way, while nearly unprecedented, is consistent with the President’s rhetoric and transactional approach to trade relationships.  In addition to supporting the domestic steel and aluminium industry (a key constituency for Trump) the new tariffs are likely intended to gain leverage for current and future trade talks, such as renegotiations of the North American Free Trade Agreement (NAFTA), or potential bilateral trade talks with Japan.  Challenges to his actions in the WTO also initiate a high-stakes process which could put the US on a collision course with WTO rules. While a long way down the road, this could force a moment of reckoning for the US as it decides how to approach the institution.

The new administration also recently commenced another similar trade remedy process targeting cars and automobile parts. These new potential tariffs would also have a disproportionate impact on Canada, Mexico, Japan, and the EU.  The US Department of Commerce is collecting public comments on this process until 22 June, followed by a public hearing 19-20 July.  If the process proceeds swiftly, it could result in new tariffs before the US midterm elections in November.

Author: Logan Finucan, Policy Analyst, Access Partnership

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