US President Donald Trump's announcement on Thursday that the US would impose new tariffs on imports of steel and aluminium has set off a chain reaction, pushing the US to the precipice of a trade war as key allies vowed to retaliate.
Our Steel and Aluminum industries (and many others) have been decimated by decades of unfair trade and bad policy with countries from around the world. We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!— Donald J. Trump (@realDonaldTrump) March 1, 2018
Trump promised new tariffs — taxes on imports — of 25% for steel and 10% for aluminium. This is bad news for South African producers.In January, iron and steel represented almost a quarter of all South African exports to the US, according to data from the SA Revenue Service.
A number of local companies produce steel for the US market, including ArcerlorMittal SA. Hulamin, a Pietermaritzburg-based company that supplies aluminium products for Elon Musk’s Tesla vehicles, may also be affected.
The Trump announcement hurt commodity-driven currencies like the rand, which weakened to R11.88 to a dollar overnight. Markets also tanked on the news as investors feared a global trade war.
The Dow Jones industrial average dropped as much as 500 points Thursday. Industrial companies that would take a hit from higher steel and aluminum prices fell sharply.Heavy equipment maker Caterpillar fell 2 percent and aerospace giant Boeing gave back 4 percent. Big exporters like Apple and drugmaker Pfizer, which would suffer if trade tensions picked up, also fell.
On Friday morning, Asian markets were down, with the Nikkei losing more than 2% by the time of writing.
Trump's announcement came after a Department of Commerce investigation into the national security risks of imports of steel and aluminum, meant to determine whether the US would be too dependent on the imports if a geopolitical incident required the country to default to its own production.
Several key allies attacked Trump's move, saying their countries' imports posed no national security risk to the US because of political relationships.
Jean-Claude Juncker, the president of the European Commission, said in a statement that the European Union would "react firmly and commensurately to defend our interests."
"We strongly regret this step, which appears to represent a blatant intervention to protect US domestic industry and not to be based on any national security justification," Juncker said. "Protectionism cannot be the answer to our common problem in the steel sector."
Previous reports suggest that the EU is looking into taxes on imports of bourbon, orange juice, motorcycles, and other agricultural products as retaliation.
Chrystia Freeland, Canada's foreign minister, also sent out a swift response. Canada is the largest exporter of steel to the US, as well as a major destination for US steel exports.
"It is entirely inappropriate to view any trade with Canada as a national security threat to the United States," Freeland said. "We will always stand up to Canadian workers and Canadian businesses. Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers."
The UK, meanwhile, took a more cautious approach in its response while expressing concern.
"We are engaging with the US on what this announcement means in practice. We have been clear that we are particularly concerned by any measures that would impact the UK steel and aluminum industries," a representative for the UK's Foreign and Commonwealth Office said in a statement. "Overcapacity remains a significant global issue and we believe multilateral action is the only way to resolve it in all parties' interests."
In addition to the US's allies, China is said to be considering retaliatory measures, including tariffs on imports of soybeans from the US, which totaled over $12.4 billion last year.
The Financial Times reported that Mexico was prepared to strike back as well unless Trump exempted it. According to Mexican data, the country imported nearly $4.5 billion of US steel while sending $3.6 billion back across the border.
The swift blowback raised concerns that Trump's decision places the US on the path to a trade war, with countries increasing trade restrictions in a tit-for-tat fight.
Jan Hatzius, Goldman Sachs' chief economist, said the risk of trade battles soared with the announcement.
"This is likely to escalate trade tensions, particularly as it looks likely to apply to a broad group of countries, including to some allies of the US," Hatzius said in a note to clients. "We expect further disruptive trade developments over the coming months, including stalled NAFTA negotiations and potential restrictions on Chinese trade and investment."
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