Trump's tariffs – What you need to know

Donald Trump’s administration has slapped tariffs on steel and aluminium imports from the EU, Canada and Mexico.

What is affected?

The US commerce secretary Wilbur Ross says there will a 25% tariff (basically a tax) on steel and 10% on aluminium, taking effect on 1 June.

The tariffs were actually announced in March but the EU (along with some other US allies) was given an exemption. This exemption was due to expire on 1 June.

What is at stake?

In March, Gareth Stace, director of industry group UK Steel, said the sector exported some 350,000 tonnes of products to the US in 2017, over 7% of its total exports.

He said on Thursday that this was equivalent to $ 0.5bn in steel exported from the UK to the US.

For the EU, the measures will affect exports that were worth €6.4bn (£5.6bn) in 2017.

The potential effect on jobs is not yet clear.

Steel worker
Image: Jobs could be affected by the tariffs

What has been the UK reaction?

A government spokesman said they were “deeply disappointed” and that the UK and other EU countries, being close allies of the US, should be “permanently and fully exempted” from the tariffs.

They added: “We will continue to work closely with the EU and US administration to achieve a permanent exemption, and to ensure that UK workers are protected and safeguarded.”

Perhaps they were also considering what this could mean for the possibility of a trade deal with the US post-Brexit.

What will the EU do next?

The EU, which says the tariffs are unfair and protectionism, will take its case to the World Trade Organization on 1 June (the day the tariffs take effect).

They had already revealed plans for “re-balancing” – placing tariffs on some US products (orange juice, denim, motorbikes and peanut butter are among some of the products mentioned), the level of which will “reflect the damage caused by the new US trade restrictions”.

They will also be trying to protect the EU market from a flood of extra steel that might be heading its way as a result of the effective closure of the US market.

Jean-Claude Juncker calls unilateral US trade tariffs 'unacceptable' 0:52
Video: Juncker: US tariffs are 'unacceptable'

What do those in the steel industry say?

UK Steel’s Gareth Stace said Donald Trump’s move has “started a damaging trade war”.

He added: “It is difficult to see what good can come of these tariffs, US steel consumers are already reporting price increases and supply chain disruption and with some half billion dollars of steel exported from the UK to US last year, UK steel producers are going to be hit hard.

“As stated time and time again, the only sustainable solution to the root cause of the issue, global overcapacity in steel production, is multilateral discussions and action through established international channels.”

What about others affected, such as Canada and Mexico?

Mexico said it would hit back with levies on US imports such as pork bellies, apples, grapes, cheeses and flat steel.

Canada’s foreign minister Chrystia Freeland said before the US announcement: “The government is absolutely prepared to and will defend Canadian industries and Canadian jobs. We will respond appropriately.”

Brazil, Argentina and Australia have agreed to limit steel shipments to the US in exchange for being spared the tariffs, the Commerce Department said. Tariffs remain on imports from Japan.

Some say Donald Trump  deserves a Nobel Peace Prize
Image: The move on tariffs was not unexpected from Donald Trump

Why has Trump done this?

The US President says the reason is national security and, being an aggressive and confrontational move, it is perhaps not unexpected.

Donald Trump campaigned for the presidency on the promise of restoring jobs to the decaying steel towns across America’s rust belt – his core support area. Since 2000, 50,000 jobs have been lost in the steel industry and 40,000 in the aluminium factories.

And, for the US, there is a lot at stake – the White House says the country is the world’s largest importer of steel, bringing in nearly four times as much as it exports.

But will tariffs help?

Tariffs make imported goods more expensive and local products cheaper in comparison. And, meanwhile, the government gets a bit more money. But, long term, it’s more complicated.

Because imported goods are more expensive, there is less competition and less incentive for domestic producers to reduce their prices.

Tariffs also reduce efficiency, meaning that companies that would be left behind by a more competitive market are able to remain in business.

All up, this can mean higher prices and lower quality products for the consumer.

Also, in this case, US farmers could be hit hard – EU retaliation is likely to focus on products important to them.

From a diplomatic point of view, the US move goes further towards isolating it from its closest friends in the world, at a time when it needs those friends on issues such as North Korea, Iran and the Middle East.

Traders at the New York Stock Exchange in September 2008
Image: Markets met the announcement with falls

How have markets reacted?

Financial markets dipped after the announcement, not so much due to the tariffs but fears of the trade war they might spark.

The Dow Jones industrial average was down almost 0.6%, the FTSE closed 0.15% down, France’s CAC lost half a percent and Germany’s DAX shed 1.4%.

Is this a trade war?

It isn’t strictly a trade war until the other side has retaliated.

We will have to wait to see exactly what the Europeans, Canadians and Mexicans do next…

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