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WASHINGTON (Reuters) – President Donald Trump announced on Thursday he would impose hefty tariffs on imported steel and aluminum to protect U.S. producers, risking retaliation from major trade partners like China, Europe and neighboring Canada as well as helping to trigger a large selloff on Wall Street.
U.S. President Donald Trump’s threat to impose steep tariffs on steel and aluminum imports left Canadian companies in a cloud of uncertainty Thursday, jolting stock prices and leaving experts to parse how the punitive action might be enforced.
Trump told a gathering of U.S. industry executives on Thursday that he would impose import tariffs of 25 per cent on steel and 10 per cent on aluminum. He said he would officially sign off on the deal “some time next week.”
No details were provided around what type of steel and aluminum products would be subject to punitive actions, and which countries would be targeted.
“It’s a mess,” said Charles Bradford, an analyst at Bradford Research Inc. based in New York.
It seemed likely that the tariffs would be broadly applied to all countries, including Canada, Bradford said.
But there is little clarity around whether so-called “semi-finished” products, like those manufactured by Hamilton-based Stelco Holdings Inc., would be targeted under the new regime. Tariffs on other products such as rolled steel, which the U.S. depends heavily on Canada for, also remains uncertain.
Canada is the largest foreign supplier of steel to the U.S., accounting for 16.1 per cent of the country’s imports. Brazil has the next-largest share at 13 per cent, followed by South Korea at 10.2 per cent.
Further muddying the waters were questions whether steel products used in highly integrated supply chains, such as auto manufacturers in Canada and the U.S., would face steeper duties.
“There’s an awful lot of steel that goes back and forth,” Bradford said.
Stelco’s stock price fell more than six per cent on the Toronto Stock Exchange in a broadly negative market. Auto parts producer Linamar Corp. fell just under three per cent, while Magna International Inc. dropped 2.6 per cent, and Martinrea International Inc. was down 1.8 per cent on the day.
U.S. steelmaker stock prices jumped on the news, but the Dow Jones Industrial Average closed down 420.22 points, or 1.68 per cent, to 24,608.98. Shares of Ford Motor dropped 3 per cent and General Motors fell nearly 4 per cent.
The move could acutely impact Canadian producers of both aluminum and steel, apart from companies in the oil and gas sector.
A study by Association of Oil Pipe Lines last year showed that a 25 per cent increase in pipeline costs could increase a typical project by US$76 million, while major lines like TransCanada Corp.’s proposed Keystone XL expansion would cost at least US$300 million more.
“If implemented, it could represent a stiff blow to Canadian industry,” analysts at CIBC said in a note Thursday.
The move comes after similar duties by the Trump administration on softwood lumber, various paper products and steel pipe.
Steep tariffs on aluminum and steel had been expected for some time. Last April, the U.S. president ordered the Commerce Department to study the impact of steel and aluminum imports on national security under seldom-used section 232 of the 1962 Trade Expansion Act. The department submitted its final report to the president in February.
The delivery of Thursday’s announcement was confused. Trump seemed to indicate early in the morning that his administration would move ahead with the punitive duties, only to have senior White House officials later deny that claim, saying an announcement would not come Thursday. Media reports suggested Trump had faced intense pressure to back off from both sides of the aisle.
“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,” Trump said on Twitter Thursday morning. “We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!”
Canadian representatives have urged the Trump administration to scale back its anti-trade policies.
“It is entirely inappropriate to view any trade with Canada as a national security threat to the United States,” Foreign Affairs Minister Chrystia Freeland said in a statement.
“Should restrictions be imposed on Canadian … products, Canada will take responsive measures to defend its trade interests and workers.”
The United Steelworkers, which has 800,000 union workers in Canada and the U.S., thinks the White House should exempt Canada from punitive actions and instead focus on countries that breach anti-dumping rules such as China, Egypt, India, Malaysia, South Korea, Russia, Turkey and Vietnam.
“Canada is not among the ‘bad actors’ engaged in unfair trade and dumping of aluminum and steel into the United States and must be excluded from potential U.S. tariffs and quotas,” the USW said in a statement Feb. 16.
Punitive actions by the Trump administration have raised concerns of triggering a trade war that could spur global retaliation.
“Raising trade barriers would risk setting off a trade war, which could damage economic growth prospects around the world,” New York Federal Reserve president William Dudley said in Brazil on Thursday. “If tariffs go up, it will, at the margin, tend to put more upward pressure on prices, and those upward pressure on prices will have to be considered by the monetary authority.”
Robust growth of the U.S. economy in recent quarters has put the country in inflationary territory, threatening to further hurt the country’s trade balance.
“We anticipate that the large fiscal stimulus will significantly worsen U.S. external balances, including the fiscal and trade deficits,” analysts at Barclays said in a Feb. 23 note. “A wider trade deficit should increase pressure for restrictive trade policies, and we view further steps to restrict trade beyond steel and aluminum as likely.”
But the U.S. president, who has wobbled on many issues during 14 months in office, could still soften his stance by next week.
“Could he change his mind? Absolutely,” Bradford said. “He has a lot of flexibility.”
With files from Reuters
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