Trump tariff threat sparks fears of tit-for-tat trade war

Will US president Donald Trump’s tariffs on steel and aluminium be a temporary distraction or the start of something more serious? Swings on Wall Street on Monday suggested some confusion on the subject.

Comments by President Trump in tweets indicated that Canada and Mexico might be excluded from the tariffs if they gave in to US demands in renegotiating the Nafta free trade agreement.

This followed weekend indications that no countries would be excluded from the tariffs. With even senior Republicans such as House speaker Paul Ryan calling on Trump to pull back, all eyes will now be on whether the planned announcement of the tariffs goes ahead this week and if so what the detail will be.

Commerce secretary Wilbur Ross was quoted as saying, somewhat delphically: "Whatever his [the president's] final decision is, is what will happen. What he has said he has said; if he says something different, it'll be something different." So now you know.

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So far, the president does not appear to be for turning, tweeting yesterday: “To protect our country we must protect American Steel! #America First.”

What is worrying trade experts, in particular, is that he has used 1962 US legalisation to implement tariffs based on national security interests. This rarely used option has never been employed in recent years and allows blanket tariffs for an indeterminate period of time.

It also put the World Trade Organisation, the body which oversees world trade, in something of a bind. The WTO rules contain exemptions allowing countries to act in the interests of national security, though this is intended to be used in wartime or a national emergency.

The WTO’s powers to respond are questionable – and with Trump’s policies already stymying the organisation’s ability to do its job, the WTO would fear he might now walk away completely.

But if Trump goes ahead, then other countries may similarly invoke national security interests to respond, rather than engage in potentially lengthy cases through the WTO.

Trump’s policies have often turned out to be less extreme than expected. But real worries of a tit-for-tat trade war remain as this one plays itself out. Most trade blocs impose tariffs or other measures in specific instances, but not in the kind of general way signalled by Trump. If he goes ahead, this could escalate.