President Trump is done playing nice with the European Union and other U.S. trading partners.
Almost two months to the day since Trump granted several key allies temporary exemptions from aluminum and steel tariffs, dodging a trade war that could have hurt the very people who put him in the White House, his administration announced Thursday that trade penalties of 25 and 10 percent would take effect at midnight against Canada, Mexico, and the EU.
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“We did everything to avoid this outcome,” EU Trade Commissioner Cecilia Malmström said in a statement responding to Commerce Secretary Wilbur Ross, who claimed the U.S. “made some progress” in negotiations with trading partners but not enough to justify continued tariff relief.
Thursday’s announcement came less than 48 hours after Trump said his administration was prepping tariffs on $50 billion worth of goods from China, along with other punitive measures that could further rattle financial markets and derail talks with North Korea about denuclearization in the region. That decision frustrated officials in Beijing, who had wrapped up trade talks 10 days prior with a U.S. delegation led by Treasury Secretary Steve Mnuchin.
“Every flip-flop in international relations simply depletes a country’s credibility,” China’s foreign ministry spokeswoman Hua Chunying told reporters on Wednesday, days before a second round of previously scheduled talks between the U.S. and China were set to take place.
Trump’s top trade adviser Peter Navarro later defended the move as a “measured” step that advances U.S. economic and national security interests.
“What Trump has done is threaten tariffs against the EU, China, Canada, Mexico and others to try to force those countries to negotiate deals that he believes will be in the United States’ interest. But none of those countries he has targeted, with the exception of South Korea, have been willing to negotiate with a gun to their head,” explained Ted Alden, a senior fellow on trade at the Council on Foreign Relations.
After moving on China and faced with a Friday deadline on the EU, Canada and Mexico, Trump chose to carry out his threats against those trading partners as well.
And all three responded with threats of retaliation. Mexico said it plans to impose comparable penalties on U.S. goods such as pork, fruits, and flat steel. Europe announced plans to impose equivalent tariffs on American-made motorcycles, denim, bourbon and cigarettes. And Canada was expected to hold a news conference Thursday afternoon to discuss Prime Minister Justin Trudeau’s previous pledge to “take responsive measures” to defend the country’s trade interests and industries.
According to Alden, the U.S. “in many ways” is now at the beginning of a trade war – something Trump’s critics warned would happen when he first announced his plan to impose tariffs on steel and aluminum imports.
“What we’ve lived through from the start of the Trump administration is kind of a phony war. Lots of threats, but no real action,” Alden said. “But this is starting to get real now.”
Trump must now decide whether to suspend the tariffs and resume negotiations with U.S. trade partners – something that could save Americans from sticker shock, calm markets, and ease tensions with key allies – or impose additional penalties and his accelerate his administration’s Section 232 investigation into whether automobile imports threaten national security.
“There are sort of three possibilities going forward: One is that these countries give into what Trump is demanding, and I think the likelihood of that is zero. The second choice would be for the president to say, ‘Whoops, I changed my mind,’ and I think that will only happen if there’s a really negative market reaction, which we haven’t seen yet, or pressure from U.S. companies,” Alden said. “Option No. 3 is he continues to ratchet up the pressure by announcing his withdrawal from NAFTA. I think of the three scenarios, that’s the most likely.”
Ongoing NAFTA negotiations with Canada and Mexico were one of the reasons Trump initially excused both countries from tariffs. But Thursday’s announcement paints a bleak forecast for the trilateral trade agreement, which would need congressional approval if revised.
“The decision to impose tariffs on Canada and Mexico suggests that prospects for a NAFTA agreement in the near-term are fading,” Alec Phillips, an economist at Goldman Sachs, told Bloomberg on Thursday. House Speaker Paul Ryan had previously given the administration a deadline of May 17 to submit a notice of intent to sign a new NAFTA deal.
Trump is expected to release additional details on trade penalties in the coming weeks that could roil relations with China at a critical time for nuclear talks with Pyongyang. By the end of June, his administration intends to provide a list of Chinese products that will be subject to tariffs and impose restrictions on Beijing’s access to American technology.
Meanwhile, China announced Thursday evening that it plans to reduce tariffs on a mix of imports by July 1, a decision that comes two days before Ross heads to Beijing. The move has been criticized by allies of the administration who believe it does little to reduce the country’s $375 billion trade surplus with the U.S.
