Aluminum pipes are arranged for a photograph (Photographer: Tomohiro Ohsumi/Bloomberg)

Trump Signs Tariff Order on Metals With Wiggle Room for Allies

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(Bloomberg) -- President Donald Trump followed through on his pledge to impose stiff tariffs on imported steel and aluminum, while excluding Canada and Mexico and leaving the door open to sparing other countries on the basis of national security.

The president signed a proclamation authorizing the tariffs at a meeting Thursday afternoon with workers from the steel and aluminum industries. The U.S. will levy a 25 percent duty on steel and 10 percent on aluminum, the same level Trump promised when he revealed the plan March 1. The tariffs will take effect in 15 days.

“Today I’m defending America’s national security by placing tariffs on foreign imports of steel and aluminum,” Trump said, flanked by workers from the industries and economic advisers who had backed the plan.

The president warned there would be more tariffs coming, saying he planned to proceed with what he has called “reciprocal taxes” on imports from countries that charge higher duties on U.S. goods than the U.S. now charges on their products. “We’re going to be doing a lot of that,” he said.

Read more: Trump Doubles Down on Reciprocal Tax Proposal

The president said U.S. political leaders preceding him had allowed the decline of manufacturing in the nation, and cited a protectionist predecessor, Republican President William McKinley, in defense of the tariffs. “Our factories were left to rot and to rust all over the place,” Trump said.

Fellow Republicans harshly criticized the measures. Senator Jeff Flake of Arizona said the “so-called ‘flexible tariffs’ are a marriage of two lethal poisons to economic growth --protectionism and uncertainty.” Senate Finance Committee Chairman Orrin Hatch of Utah said, “Simply put: This is a tax hike on American manufacturers, workers and consumers.”

“I disagree with this action and fear its unintended consequences,” House Speaker Paul Ryan of Wisconsin said in a statement. “There are unquestionably bad trade practices by nations like China, but the better approach is targeted enforcement against those practices.”

Gary Cohn, the National Economic Council director who announced his resignation on Tuesday after failing to persuade Trump against the tariffs, stood in the back of the room.

Exempting some nations marks a compromise from Trump’s initial plan for across-the-board tariffs, which was harshly criticized by members of his own Republican party who said it would cost U.S. jobs, raise consumer prices and hit American manufacturers. Trading partners including the European Union threatened retaliation, triggering fears of a trade war. International Monetary Fund Managing Director Christine Lagarde said no one wins in a trade battle and warned the proposed tariffs could have a serious negative economic impact.

Message Received

The message appeared to get through. Trump agreed to exclude Canada and Mexico from the duties because of their status as key regional allies and partners with the U.S. in renegotiating a new North American Free Trade Agreement, said the official, who spoke on condition of anonymity. Any U.S. trade partner has the option of asking to be excluded from the tariffs, the official said, and allies could be excluded if they can demonstrate how the tariffs would damage their national security.

U.S. aluminum and steel stocks, which had declined earlier Thursday, ended regular trading lower after Trump announced his administration’s import tariffs plan.

U.S. Steel Corp. was down 3 percent at 4 p.m. in New York, after earlier falling as much as 4.6 percent, while Nucor Corp., the largest American producer, dropped 2.7 percent. Alcoa Corp., the biggest U.S. aluminum producer, ended down 0.9 percent after declining as much as 2.8 percent, while Century Aluminum Co. was down 7.5 percent.

The prospect of further exclusions should trigger a push by U.S. allies in Europe, Australia and elsewhere to lobby for similar treatment to Canada and Mexico.

The tariff threat has escalated tensions from Beijing to Brussels. On Thursday, China’s foreign minister, Wang Yi, vowed a “justified and necessary response” to any efforts to incite a trade war. It was the Chinese government’s most forceful response yet to the new tariffs.

Wang, who spoke on the sidelines of the National People’s Congress in Beijing, urged the U.S. to work with China on a mutually beneficial solution.

“A trade war has never been the right way to solve the problem, especially under globalization,” Wang said. Such a conflict “will only harm everyone and China will surely make a justified and necessary response.”

Steel Supplier

Canada, the biggest supplier of steel and aluminum to the U.S., and No. 4 steel-provider Mexico had asked to be exempted, and indicated they would have retaliated if Trump included them in the duties.

Negotiators from the U.S., Canada and Mexico wrapped up the seventh round of Nafta talks this week in Mexico still hoping for a breakthrough on the biggest sticking points. No date has been announced yet for the next round of negotiations and it’s almost certain the parties won’t meet their goal to reach a deal by the end of March.

“If we don’t make the deal on Nafta,” Trump said, “then we’re going to terminate Nafta and we’re going to start all over again, or we’ll just do it another way.”

But if a deal is made, he said “there won’t be any tariffs on Canada, and there won’t be any tariffs on Mexico.”

The auto industry, which depends on steel, welcomed the exemption for Mexico and Canada. Matt Blunt, president of the American Automotive Policy Council, which represents major U.S. car manufacturers said the exemptions were “a step in the right direction.” Blunt said the industry is “committed to working with the administration to find a long-term solution within the new framework that supports jobs in the U.S. auto industry and across the supply chain.”

The EU has warned it would respond with its own 25 percent tariff on about $3.5 billion of American goods. The bloc is targeting iconic U.S. brands produced in key Republican states on a range of consumer, agricultural and steel products, according to a list drawn up by the European Commission.

Trump’s authority to establish the tariffs stems from a Commerce Department investigation that found that imports of the metals pose a risk to national security. The probes were authorized under the seldom-used Section 232 of the 1962 Trade Expansion Act, which gives the president broad powers to impose trade restrictions on domestic security grounds.

©2018 Bloomberg L.P.

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