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26th May 2018

Trade war feared as EU to retaliate on US steel

  • German steel procures among those likely to suffer (Photo: Daniel Mennerich)

US plans to impose steel and aluminium tariffs risk prompting a wider trade war after the EU, China, and others vowed to retaliate.

"We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk," European Commission head Jean-Claude Juncker said on Thursday (1 March).

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  • Trump said tariffs needed on national security grounds, because US steel firms supplied military contractors (Photo: whitehouse.gov)

He said the EU would "react firmly" in "the next few days" with "countermeasures" that were compatible with World Trade Organisation rules.

He also indicated that US president Donald Trump's "blatant … protectionism" risked doing wider harm to transatlantic relations.

"The EU has been a close security ally of the US for decades," Juncker noted, after Trump ignored proposals by his own trade chief to exclude "friendly states" from the metals decision.

Trump said, earlier on Thursday, that steel importers would have to pay a 25 percent tariff and aluminium importers 10 percent after the measures entered into life next week.

Germany is the EU's biggest steel exporter to the US and shipped 1.4 million tonnes there last year.

That figure is small compared to Canada and Brazil, which shipped around 5 million tonnes each to the US.

But VW Stahl, the German steel lobby, said Trump's move threatened to flood the EU market with foreign steel when those countries diverted exports from the US.

"If the EU does not act, our steel industry will pay the bill for protectionism in the US. Europe is threatened by trade diversion by a new steel spill, in a situation where the import crisis in the EU market is far from over," VW Stahl chief Hans Juergen Kerkhoff said, referring to global overcapacity in the sector.

With Canada, Brazil, and other steel exporters, such as China, also threatening retaliatory measures, Kerkhoff added that the risk of a broader trade war risked seeing EU exporters shut out of other markets as well.

"German supplies to other countries would also be affected, as the US measures would have imitation effects and thus an increase in global protectionism," he said.

He spoke after Canadian foreign minister Chrystia Freeland said "Canada will take responsive measures to defend its trade interests and workers".

The US measures "overturn the international trade order," Wen Xianjun, vice chairman of the China Nonferrous Metals Industry Association, said, adding: "Other countries, including China, will [also] take relevant retaliatory measures."

The Chinese reaction is expected to target US exports of soy beans as well as metals, highlighting the risk of a wider protectionist backlash around the world.

The Trump tariffs raise "risks of an all-out trade war, which could dampen economic growth," the Australia & New Zealand Banking Group said in a note.

Trump made the announcement at a meeting with a dozen or so CEOs of US steel makers, including US Steel Corp and Arcelor Mittal, which stand to gain from his decision.

But the resulting hike in raw materials costs for US steel-using industries, such as energy companies, car makers, and the aerospace and construction sectors, which employ 80 times as many people as US steel makers, risked undoing any benefits for the American economy.

"We are urging the administration to avoid killing US jobs through a steel tariff that impacts pipelines," said Andy Black, CEO of the Association of Oil Pipe Lines, a US pressure group.

The situation was quickly reflected on Wall Street, where shares in US steel firms rose by 7 percent on Thursday, while those in steel-users such as Ford, Caterpillar, and Boeing fell by 3 percent.

Shares in steel firms in China, Japan, and South Korea also fell on the news.

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