Fears of an international trade war have erupted after the Trump administration prepared to impose at midnight Friday (June 1) twice-delayed tariffs on steel and aluminum imports from the three leading U.S. allies -- Mexico, Canada and the European Union (EU).
Trade associations representing the oil and gas industry voiced alarm over the developments and said the tariffs would ultimately hurt the U.S. pipeline industry.
In the wake of the trade brouhaha, Commerce Secretary Wilbur Ross said the decision issued Thursday to impose the tariffs on Canada and Mexico was made because of insufficient progress in renegotiating the North American Free Trade Agreement (NAFTA). He also predicted that any retribution on trade would be ineffectual and lead to only "trivial" cost increases for American consumers.
President Trump first proposed levying a 25% tariff on steel imports and a 10% tariff on aluminum imports on March 1. Three weeks later, he issued a proclamation calling for suspending the tariffs until May 1 while negotiations were ongoing. Although the White House extended trade negotiations with Canada, Mexico and the EU on April 30 for another 30 days, Chinese imports were hit with the tariff on May 1.
Swift Retaliation From Allies
All three allies immediately moved to retaliate.
The Mexican government said it "deeply regrets and rejects" the decision to levy the tariffs and said it would retaliate in kind. Mexico City said it plans to target various products made in the United States, including flat steel, furniture and food products.
"This measure will be in force until the U.S. government eliminates the imposed taxes," Mexico's Ministry of Economy said in a translated statement posted to its official website. "Mexico reiterates its openness to constructive dialogue with the U.S., its support for the international trading system and its rejection of unilateral protectionist measures."
Said Mexico Foreign Affairs Minister Luis Videgaray, “Our positions are clear, and we will continue working on all fronts to ensure that the relationship between Mexico and the United States lives up to what it should and can be…
“These positions will not change due to the rhetoric or actions of this kind” by the U.S. administration, he said in remarks to journalists on Thursday. “We will remain in close communication with Canada so that we may continue to jointly defend an open, free and rules-based trade regime, including the successful modernization of the free trade agreement.”
Canadian Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland announced plans to levy up to C$16.6 billion ($12.8 billion) in tariffs on a host of American-made products. Ottawa plans to solicit public comments over the proposed tariffs until June 15 and enact them on July 1.
"This is the strongest trade action Canada has taken in the post-war era," Freeland said. "This is a very strong response. It is a proportionate response. It is perfectly reciprocal...This is a very strong Canadian action in response to a very bad U.S. decision."
Trudeau said he made an offer to Trump earlier in May to meet in Washington, DC, "to work out the final details of NAFTA." But the talks were derailed after the White House insisted that Ottawa agree to a five-year sunset clause in the trade pact.
"There was the broad lines of a decent 'win-win-win' deal on the table that I thought required that final 'deal-making moment,'" Trudeau said. "I got a call from Vice President Pence on Tuesday in which it was impressed upon me that there was a precondition to us being able to get together: that Canada would accept a sunset clause for NAFTA.
"I had to highlight that there was no possibility of any Canadian prime minister signing a NAFTA deal that included a five-year sunset clause. Obviously, the visit didn't happen."
Speaking for the EU, European Commission President Jean-Claude Juncker said the tariffs are "unjustified" and run afoul of World Trade Organization (WTO) rules. The 28-member trade bloc has "no choice" but to file legal proceedings with the WTO on Friday, and plans to immediately impose additional duties on products imported from the United States.
"This is protectionism, pure and simple," Juncker said, later adding that the EU has "consistently indicated our openness to discussing ways to improve bilateral trade relations with the U.S., but have made it clear that the EU will not negotiate under threat."
Overcapacity in the steel sector remains at the center of the trade dispute, but Juncker said the EU was not the source of the problem, and that the trade bloc was, in fact, "equally hurt by it. That is why we are determined to work toward structural solutions together with our partners…”
However, “by targeting those who are not responsible for overcapacities, the U.S. is playing into the hands of those who are responsible for the problem."
NAFTA Talks 'Didn't Get Far Enough'
During an interview Thursday with CNBC, Ross said even if the EU followed through with its threat to levy tariffs on more than $3 billion of American-made products, such as bourbon whiskey, jeans and peanut butter, the price increase would amount to less than 1% of the $18 trillion U.S. economy.
"You're only looking at one side of the equation, which is the price side," Ross said. "There are dozens of other steel industry and aluminum industry players, all of whom are adding employment and opening facilities as a result. So when you're thinking about the overall economy, it's not just the trivial increase in product prices -- it's also the increase in employment and the strength of the economy overall.
"Even if the EU does retaliate, and even if some others do, it still will remain unlikely to be as much as 1% on our economy. Remember, just because they put tariffs on some of our products, it doesn't mean those sales will go to zero. And in the case of agriculture, they may very well find other markets that are just as good."
On the issue of worldwide steel production, Ross said "there's overproduction of steel and there's overcapacity throughout the world. We have needed to deal with it in a very global manner. You can't just deal with it [by] dealing with one country."
When asked if the Trump administration had levied the tariffs against Canada and Mexico because the NAFTA discussions weren't going well, Ross said "it's a reflection that the discussions didn't get far enough to justify another postponement or an exemption."
Ross was to travel to China on Friday.
'Step In The Wrong Direction'
As the trade dispute unfolds, the oil and gas industry continued to fret about specialty steel products, which are used in oil and gas pipelines and at liquefied natural gas export facilities.
CEO Don Santa of the Interstate Natural Gas Association of America (INGAA) called the decision to impose the tariffs "very troubling to the U.S. pipeline industry," and run counter to the Trump administration's oft-stated goal of achieving energy dominance.
"The large-diameter, thick-walled steel used to construct natural gas transmission pipelines is a niche product with unique technical specifications," Santa said. "Pipelines require specialty steel products not always available in sufficient quantities and specifications from domestic manufacturers. For certain steel products used in pipelines, no domestic product is available today."
American Petroleum Institute (API) CEO Jack Gerard concurred, calling the tariffs "a step in the wrong direction" that could also weaken national security.
"Increased prices in specialty steel could threaten the continued domestic production of oil and natural gas and natural gas liquids, which are at their highest levels of production since 1949, and could raise energy costs for U.S. businesses and consumers," Gerard said.
The oil and gas industry has submitted comments on an interim final rule outlining a procedure for requesting an exemption to the tariffs. The rule, conceived by the Commerce Department, was published last March in the Federal Register.
The industry and its allies argue that specialty steel products meet the criteria for an exemption from the steel tariff because there is an insufficient supply of comparable products from domestic steel manufacturers.
Last month, API, INGAA and other trade groups -- specifically, the American Gas Association, the Association of Oil Pipe Lines, the GPA Midstream Association, the Independent Petroleum Association of America, and the Interstate Natural Gas Association of America -- recommended a list of 11 changes to the interim final rule.