US hits allies Canada, Mexico and the European Union with tariffs as trade war fears rise

The United States on Thursday said it will impose tariffs on aluminium and steel imports from Canada, Mexico and the European Union, ending months of uncertainty about potential exemptions and reigniting fears of a global trade war. The move, announced by U.S. Commerce Secretary Wilbur Ross in a telephone briefing on Thursday, angered top U.S. allies and suggested a hardening of the Trump administration`s approach to trade negotiations. It also sent a chill through financial markets, with the Dow Jones Industrial Average down around 0.5 percent. Shares of industrial heavyweights Boeing and Caterpillar were each down about 1 percent, while shares of U.S. steel and aluminium companies rallied.

A 25 percent tariff on steel imports and 10 percent tariff on aluminium will be imposed on imports from the EU, Canada and Mexico starting at midnight (0400 GMT on Friday), Ross told reporters. "We look forward to continued negotiations, both with Canada and Mexico on the one hand, and with the European Commission on the other hand, because there are other issues that we also need to get resolved," he said. U.S. President Donald Trump announced the tariffs in March as part of an effort to protect U.S. industry and workers from what he described as unfair international competition. Temporary exemptions were granted to a number of nations and permanent ones to several countries including Australia, Argentina and South Korea. U.S. trading partners had demanded that the exemptions be extended or made permanent.

"Today, France and the EU disapproves, of course, these measures," France`s junior trade minister Jean-Baptiste Lemoyne told reporters in Paris. "We are getting ready to put in place safeguards, rebalancing measures because we won`t let unjustifiable and unjustified measures go unanswered."

Germany`s foreign minister Heiko Mass called the tariff decision unlawful.

The Trump administration also has threatened to impose tariffs on car imports, is engaged in negotiations with China to reduce America`s yawning trade deficit and has said it will punish Beijing for stealing its technology by imposing tariffs on $50 billion of imports from China.

And it is engaged in talks with Canada and Mexico to update the North American Free Trade Agreement (NAFTA).

The Mexican peso weakened by more than 1 percent against the dollar, briefly crossing the 20-to-the-dollar threshold to the weakest versus the greenback in 14 months.`SIGNIFICANT THREAT`

The tariffs, which have prompted several challenges at the WTO, are aimed at allowing the U.S. steel and aluminium industries to increase their capacity utilization rates above 80 percent for the first time in years. They could also deal a heavy blow to non-U.S. producers. "The decision announced today is a significant threat to the 22,000 Canadian households whose livelihoods are directly supported by employment in Canadian steel," said Joseph Galimberti, president of the Canadian Steel Producers Association. "We would like Canada`s response to this tariff to be immediate and significant,” Galimberti said, adding that the response should “certainly include steel being imported from the United States."

Ross himself heads to Beijing on Friday where he will attempt to get firm deals to export more U.S. goods in a bid to cut America`s $375 billion trade deficit with China. After months in which it appeared the Trump administration had been backing away from tariffs amid infighting between the president`s top economic advisers, Washington has over the past week ramped up its threats on trade. German magazine Wirtschaftswoche reported on Thursday that Trump had told French President Emmanuel Macron he wanted to stick to his trade policy long enough that Mercedes-Benz cars were no longer cruising through New York. Shares of BMW, Daimler and Volkswagen fell.

The U.S. administration launched a national security investigation last week into car and truck imports, using the same 1962 law that he has applied to curb incoming steel and aluminium.

France`s Finance Minister Bruno Le Maire had met with Ross on Thursday in a bid to end the stand-off over steel and aluminium.

"It`s entirely up to U.S authorities whether they want to enter into a trade conflict with their biggest partner, Europe," Le Maire told reporters after the meeting.

Europe did not want a trade war, he said, but Washington had to back down from "unjustified, unjustifiable and dangerous tariffs". The EU would respond with "all necessary measures" if the United States imposed them.

The European Commission, which coordinates trade policy for the 28 EU members, has said the bloc should be permanently exempted from the tariffs since it is an ally and not the cause of steel and aluminium overcapacity. The EU has threatened to retaliate with tariffs on Harley Davidson motorcycles and bourbon, measures aimed at the political bases of Republican legislators who they wanted to stand up to Trump. German Chancellor Angela Merkel said the EU would give a "smart, determined and jointly agreed" response to the new tariffs that she said would break WTO rules. EU countries have given broad support to the Commission`s plan to set duties on 2.8 billion euros ($3.4 billion) of U.S. exports, including whiskey and motorbikes, if Washington ends the EU tariff exemption. EU exports potentially subject to U.S. duties are worth 6.4 billion euros ($7.5 billion).

($1 = 0.8575 euros)