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U.S. hits E.U., Canada and Mexico with steel, aluminum tariffs, sparking trade war

"This is not about the American people. We have to believe that at some point their common sense will prevail," said Canadian Prime Minster Justin Trudeau.
by Lucy Bayly /  / Updated 

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The Trump administration on Thursday slapped tariffs on steel and aluminum imports from Canada, Mexico and the European Union, prompting outrage from America’s closest allies and major trading partners and setting off a trade war that could see U.S. consumers pay more for everything from canned soup to cars.

The move to implement tariffs under the guise of national security measures triggered strong response across the globe, including a firm reproach from Canadian Prime Minister Justin Trudeau, who denounced the punitive tariffs as "totally unacceptable" and "an affront," saying that the very idea that Canada could be considered a national security threat to the United States is "inconceivable."

Canadian Foreign Minister Chrystia Freeland announced $12.8 billion in retaliatory tariffs, which she called "the strongest trade action Canada has taken in the post-war era."

Mexico also responded to the taxes, saying it would impose tariffs of its own, and the European Commission promised legal action.

U.S. Commerce Secretary Wilbur Ross confirmed to reporters in an early-morning phone call that the White House will add a 25 percent import tariff on steel and a 10 percent tariff on aluminum after trade talks crumbled ahead of a June 1 deadline that would have enabled exemptions.

Market reaction was also swift: The Dow Jones fell sharply after the move was announced, dropping by 250 points as investors took measure of the impact of the ongoing trade tensions, and falling to 300 points after Canada's retaliation.

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The European Commission fired back at the White House's trade decision with a lawsuit, saying the E.U. “stands now ready to react to the U.S. trade restrictions on steel and aluminum in a swift, firm, proportionate and fully WTO-compatible manner," referring to the World Trade Organization. The E.U. said it would launch legal proceedings against the U.S. in the WTO on Friday. The level of tariffs to be applied will reflect the damage caused by the new U.S. trade restrictions on E.U. products, it said.

Mexico’s Ministry of Economy released a statement saying, “Mexico deeply regrets and rejects the decision of the United States to impose these tariffs on imports of steel and aluminum from Mexico as of June 1, under the criterion of national security. Mexico will impose equivalent measures to various products in the face of U.S. protectionist measures.”

President Donald Trump, who has made no secret of his desire to implement more protectionist trade policies, announced in March that he planned to institute tariffs, saying, "People have no idea how badly our country has been treated by other countries.”

"These tariffs are totally unacceptable," said Trudeau in a press conference Thursday afternoon. "Over the past 150 years, Canada has been America's most steadfast ally. These tariffs are an affront to the long-standing security partnership between Canada and the United States, and in particular, to the thousands of Canadians who have fought and died alongside American comrades-in-arms."

Starting July 1, Canada will levy "dollar-for-dollar" tariffs on a selection of American-made goods, said Freeland, announcing that the government had drawn up two lists of products that would be subject to either 25 percent or 10 percent taxation, until the U.S. changed its position.

"This is not about the American people. We have to believe that at some point their common sense will prevail. But we see no sign of that in this action today by the U.S. administration," said Trudeau.

Experts who support free trade warned at the time about the potential consequences.

“Overall, the idea of imposing tariffs to help the steel and aluminum industries is really misguided and will lead to a decline in overall economic activity.”

"It will open a Pandora's box," said Dan Ikenson, director of the Cato Institute’s trade policy studies center.

Robert Scott, senior economist at the left-leaning Economic Policy Institute, said tariffs that failed to distinguish between America's trade allies and countries like China, which the U.S. has accused of illegal trade practices, could make it more difficult resolve trade disputes.

“What you try to do when you retaliate is push politically where it really hurts,” said Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics.

The retaliatory tariffs suggested so far primarily target Republican-leaning states, but if the tit-for-tat continues, a broader swath of the American economy could be drawn into the dispute. And in the long run, higher prices on imported goods would be something no consumers could escape.

“Overall, the idea of imposing tariffs to help the steel and aluminum industries is really misguided,” said Dan North, chief economist at Euler Hermes North America. “This will lead to a decline in overall economic activity.”

The roughly 150,000 jobs that could potentially be saved in those industries is dwarfed by the nearly 2 million jobs at risk in industries that use imported steel and aluminum, North said. “Those expenses will not only destroy jobs, but flow through to consumers.”

"This is dumb," Sen. Ben Sasse, R-Neb, said in a statement. “Europe, Canada and Mexico are not China, and you don’t treat allies the same way you treat opponents. We’ve been down this road before — blanket protectionism is a big part of why America had a Great Depression. 'Make America Great Again' shouldn’t mean 'Make America 1929 Again.'"

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