Global trade war looms as US tariffs roil G7 meet

The United States’ closest allies attacked the Trump administration on Friday for imposing tariffs on steel and aluminum imports and mounted challenges with the world’s top trade body, fouling the mood at a G7 finance leaders meeting.

US treasury secretary Steven Mnuchin was the prime target of the criticism at the meeting of Group of Seven finance ministers and central bank governors in Canada, with the six other G7 member countries subject to the US metals tariffs, which were imposed on national security grounds.

The tariffs also are complicating US efforts to gain cooperation to challenge China’s trade practices as US commerce secretary Wilbur Ross arrives in Beijing on Saturday for talks aimed at averting a US-China trade war.

Japanese finance minister Taro Aso, whose country’s steel and aluminum producers have been paying the US metals tariffs since 23 March, called the US action “deeply deplorable.”

“This doesn’t happen that often at G7 meetings, but it was US against everyone else,” Aso told reporters.

The European Union and Canada both filed challenges with the World Trade Organization.

Canadian foreign minister Chrystia Freeland said in a statement that the tariffs were “imposed under a false pretext of safeguarding US national security.”

At the G7 meeting in the Canadian ski resort of Whistler, British Columbia, Canadian finance minister Bill Morneau said he expressed to Mnuchin “our absolute view that this is absurd that Canada could in any way be a security risk.”

French finance minister Bruno Le Maire also said Mnuchin was clearly isolated at on the tariff issue, with the group devolved to a “G6 plus one” with the six expressing “total incomprehension” over the destabilizing US move.

“We must find a way to get out of this,” German Finance Minister Olaf Scholz told reporters. “That was said clearly by everyone and I think it was even taken on board” by Mnuchin.

Mnuchin, regarded as one of the more moderate trade voices in Trump’s cabinet, said the issue may need to be resolved by G7 leaders at a summit next week in Charlevoix, Quebec, officials attending the meetings said.

The US tariffs of 25 per cent on imports of steel and 10 per cent on aluminum were imposed early on Friday on Canada, Mexico and the European Union after they refused to accept steel and aluminum quotas in negotiations with US Commerce Secretary Wilbur Ross.

Trump Twitter Trade

Trump took to Twitter again on Friday to castigate Canada after his testy exchange with Canadian prime minister Justin Trudeau on Thursday over rocky negotiations to update the North American Free Trade Agreement.

Trump tweeted that Canada had treated US farmers “very poorly for a very long period of time.”

“Highly restrictive on Trade! They must open their markets and take down their trade barriers! They report a really high surplus on trade with us,” he wrote.

Later on Friday, Trump told reporters that he might prefer separate trade deals with Canada and Mexico instead of a revamped NAFTA.

The White House said Trump told French president Emmanuel Macron of the need to “rebalance trade with Europe.”

Trump’s words followed swift responses to the tariffs by Canada, Mexico and the EU, which plan to retaliate with levies on billions of dollars of US goods, including orange juice, whiskey, blue jeans and Harley-Davidson motorcycles.

Harley-Davidson’s stock dropped about 1 per cent on Friday, while shares of steelmakers US Steel and AK Steel both rose 2.2 per cent. The broader stock market rebounded on strong monthly jobs data.

Canada, the largest supplier of steel to the United States, said it will impose tariffs covering C$16.6 billion ($12.8 billion) on US imports, including whiskey, orange juice, steel, aluminum and other products.

Mexico announced “equivalent” measures on a wide range of US farm and industrial products, including pork legs, apples, grapes, cheese, steel and other goods.

The EU plans tariffs on US exports running the gamut from canoes to “manicure or pedicure preparations.”

“We are determined to protect the multilateral system,” EU Trade commissioner Cecilia Malmstrom said of the WTO challenge. “We are expecting everybody to play by the rules.

The EU’s 28 member states will only finalise retaliatory duties against US products in the coming weeks. And protective measures for the European steel industry could take months to implement and risk angering other partners.

Here is an overview of the firepower the Europeans say they will have at their disposal:

Complaint to the WTO

The EU has lodged a complaint against Trump’s punitive tariffs with the WTO, the Geneva-based arbitrator of international trade spats.

But the procedure can take a long time. A previous steel dispute with the US in 2002 took one and a half years with the EU in the end found in the right.

Then US president George W Bush abided by the decision and lifted the duties.

However, Trump has poured scorn on the WTO process and is blocking the appointment of new appeal judges to the organisation’s dispute settlement body, risking the system’s collapse.

Counter duties on US products

The EU Commission drew up a list of US goods worth 2.8 billion euros weeks ago, which in turn could be subject to punitive tariffs.

They include steel products, bourbon whiskey, peanut butter, motorcycles and jeans.

The EU officially notified these possible counter duties to the WTO in mid-May as a precautionary measure. According to the commission, they could come into force on June 20 at the earliest.

But whatever the case, the commission must first present EU member states an updated and detailed proposal setting a duty rate for each individual product.

Matching the US steel tariffs eye-for eye, this could be a maximum of 25 percent.

Member states will be free to choose whether to impose the proposed duties as a whole, in part or not at all.

‘Safeguard measures’

According to WTO rules, safeguard measures are possible if a sudden flood of imports “seriously” disrupt or threaten to disrupt a domestic industry.

WTO members can “temporarily restrict imports of a product”. This would be done through import quotas or higher import duties.

The Commission already started a mandatory market investigation for steel at the end of March in expectation that the US tariffs would boost imports into Europe.

The commission has nine months to decide on the protective measures, but they risk most hurting non-US countries that export steel.

This is because the EU fears “secondary effects” from the US import restrictions. Steel producers from Brazil, China, Russia, South Korea, Taiwan or Turkey will try to redirect their products that are no longer competitive in the US to the European market.

China Complications

The complaints came on the eve of a visit by Ross to China to try to secure long-term purchases of US farm and energy commodities to help shrink the US trade deficit. The US team also wants to secure greater intellectual property protections and an end to Chinese subsidies that have contributed to overproduction of steel and aluminum.

Officials at the G7 meeting said the tariffs made it more difficult for the group to work together to confront China’s trade practices, especially when Beijing, like most G7 members, supports the current WTO-based trade rules and the United States is seeking go around them.

Le Maire asked Mnuchin, “How can you get the Chinese to respect international law if you don’t?” one meeting participant said.

Mnuchin did not comment to reporters as he left the G7 meeting on Friday. The talks conclude on Saturday.

Eswar Prasad, trade professor at Cornell University and former head of the International Monetary Fund’s China division, said that US tariff actions are increasing perceptions that Washington is an unreliable trading partner.

“Rather than creating a common front to address widely held concerns about China’s trading and economic practices, Trump has succeeded in alienating key US allies and undercutting broader external pressure on China,” he said.