The tariff drama lives on another day, and this time, no country is safe. Overnight, US President Donald Trump imposed 25% tariffs on all steel and aluminium imports into the US without any exemptions. The duties are going into effect just days after the president granted some reprieves on a separate set of 25% tariffs on Canada and Mexico. He exempted goods that were compliant with the US-Mexico-Canada Agreement (USMCA).
The steel and aluminium tariffs had already been trialled during Trump’s first term in 2018 but were watered down after exemptions were granted to allies such as Canada, Mexico and Australia. Some countries used import quotas to replace the tariffs. However, former Australian Prime Minister Malcolm Turnbull recently warned that this would not be the case this time, as Trump regretted the concessions granted during his first mandate.
Go deeper with GlobalData
The move set off an automatic retaliation plan from the EU on $28bn (€25.76bn) worth of US goods. The European Commission said its current suspension of tariffs on the US would end on 1 April and that the tariff plan would fully go into effect on 13 April. The Canada-US trade war has also been accelerating, as a spat between Trump and Ontario Premier Douglas Ford caused the US President to threaten a 50% tariff on aluminium products, before backing down (12 March).
Other major allies such as the UK, Australia, Mexico and Japan have been wary of such an aggressive approach. They continue to plea for exemptions and some are allegedly working on economic trade deals behind the scenes.
The dizzying nature of the US tariffs, which are set to affect the global economy, has prompted four major responses from affected countries. Firstly, negotiate before the tariff deadline. Second, retaliate automatically when tariffs go into effect, but set a deadline that gives you breathing room to negotiate. Third, retaliate automatically without any delay in implementation. Fourth, wait and see and negotiate behind the scenes.
Negotiate pre-tariff
The most successful case of negotiations before the tariff deadlines occurred on 3 February, when Canada and Mexico secured a one-month delay on the 25% tariffs on all imports set by the US. The countries made minor concessions, with Canada adding a few details to a border plan that had already been announced months prior and Mexico sending some extra troops to the border. At the very least, the delay gave both countries time to plan their responses to further actions from the US.
Automatic retaliation, delayed deadline
The US steel and aluminium tariffs going into effect set off an automatic retaliation from the EU. The Commission has said that it will end the current suspension of US tariffs on 1 April and that its retaliation plan will be fully implemented by 13 April.
“The countermeasures we take today are strong but proportionate. As the US are applying tariffs worth $28bn, we are responding with countermeasures worth €26bn,” EU Commissioner Ursula von der Leyen told reporters.
“In the meantime, we will always remain open to negotiations,” von der Leyen added.
This gives the EU a month to negotiate reprieves or tariff decreases.
China pursued a similar strategy when it was hit with 10% tariffs in early February (at the same time as Canada and Mexico secured the 30-day delay). China automatically responded with a 15% tariff on less than $5bn (36.21bn yuan) of energy imports and a 10% charge on oil and agricultural equipment. The tariffs were meant to be implemented a week later, on 10 February.
During that week, it was not able to secure a reprieve and China’s tariffs went into effect on 10 February. A month later, on 3 March, Trump doubled the tariffs on China to 20%. China responded with a 10–15% tariff on US agricultural products, which came into effect 10 March. While China hasn’t managed to secure any delays in implementation, many analysts have highlighted that the scale of its retaliatory measures has been small, suggesting that the Chinese authorities aim to keep negotiations on the table. They have also highlighted that China’s economy is more resilient to US tariffs than it was during Trump’s first term.
Automatic retaliation and implementation
Canada has been the only country that has pursued immediate retaliation after the US imposed tariffs. Canada’s Finance Minister, Dominic LeBlanc, recently announced that Canada would respond to the steel and aluminium tariffs that just came into effect (12 March) with C$29.8bn ($20.7bn) in retaliatory tariffs that would go into effect on 13 March. Canada is the biggest importer of steel and aluminium to the US.
When the 25% tariffs against Canada first came into effect (before USMCA-compliant goods were exempted), Canada announced a $107bn retaliation plan, with $20.7bn worth of goods being affected immediately.
It is worth noting that Trump’s attacks on Canada have gone further than those on other countries, with the president repeatedly saying he would like it “to become [the US’s] cherished 51st State”. This has led to an increased sense of patriotism in Canada, where people have been embracing local goods over US imports. The country has also had to decide how to handle the tariff threat amid a power transfer from Prime Minister Justin Trudeau to successor Mark Carney.
The trade war between the US and Canada has also accelerated in the past few days, as the spat between Trump and Ontario Premier Doug Ford raised the possibility of tariffs on electricity, steel and aluminium increasing even more.
Wait and see
Mexican President Claudia Sheinbaum has taken a different route. As the March deadline for the Mexican, Canadian and Chinese tariffs passed, Sheinbaum said she would announce retaliation plans a few days after. However, before she could do that, the policy changed and Trump exempted goods that were USMCA-compliant from the tariffs. This was beneficial to Mexico as a lot of automakers such as Volkswagen manufacture vehicles there to then export to the US.
“I did this as an accommodation, and out of respect for, President Sheinbaum,” Trump wrote on his social media site, Truth Social, of the decision to exempt some goods from the tariffs. “Our relationship has been a very good one and we are working hard, together, on the border.”
Trump has adopted a very different tone than with Canada, which has given Sheinbaum political momentum as her careful approach appears to be working.
Other countries have taken similar approaches. The UK, where Prime Minister Keir Starmer has managed to mostly stay on Trump’s good side, has broken with the rest of Europe and decided not to retaliate against the steel and aluminium tariffs (at least for now). It has reaffirmed its commitment to negotiating a trade deal, which was touted during Starmer’s recent visit to the White House, but said “all options” are still on the table regarding a response.
Australia had been pushing strongly for an exemption from the steel and aluminium tariffs, as it did during Trump’s first term. However, no exceptions were given, and Prime Minister Anthony Albanese highlighted that tariffs were “entirely unjustified” and an act of “economic self-harm”. In February, Trump told Albanese that he would consider an exemption for Australia. Albanese did not respond with retaliatory tariffs, but rather, will continue to press for an exemption.
Japan had similarly been trying to secure an exemption, with Trade Minister Yoji Muto travelling to Washington for last-minute negotiations. While this approach failed, Yoji told reporters: “We must continue to assert our position” and that Japan would continue talks with the US.
More incoming
The White House is planning reciprocal tariffs from 2 April, which will see one rate for each country depending on their trade balance with the US.
“The concept here is one number-one number that reflects, in the aggregate, the unfairness embedded in the higher tariffs and non-tariff barriers that countries impose on us,” White House Trade Advisor Peter Navarro said during an interview on CNBC last Friday. He added that tariffs will also be aimed at an industry level.
