President Donald Trump’s long-threatened trade war with close allies could become reality at midnight, sparking huge potential disruptions to global financial markets and supply lines.
With only hours until the deadline, the European Union — the U.S.’ biggest trading partner — as well as Canada and Mexico are awaiting the White House’s high-stakes decision on whether they will face hefty tariffs on steel and aluminum exports to the U.S. or be spared, even on a temporary basis. The decision ultimately lies with Trump — and few people inside the White House or overseas are sure what or even when he will decide.
The countries waiting to hear their fate tonight — a group that also includes Australia, Brazil and Argentina — were granted temporary exemptions last month after Trump imposed duties of 25 percent on steel imports and 10 percent on aluminum for national security reasons. The delay was meant to allow allies more time to work out some sort of deal with Washington, possibly involving export quotas or other restrictions, that would satisfy the U.S.’ concerns and allow them to avoid the duties.
But after five weeks of frantic international negotiations, it remains unclear who may be spared the penalties. And slapping the tariffs on any of the countries in question would prompt near-immediate retaliation, roil global markets and threaten long-standing international partnerships with close allies.
“We’re busy alienating the few friends we have left,” said Bill Reinsch, a senior adviser at the Center for Strategic and International Studies. “The president clearly, on trade issues, doesn’t make a distinction between the good guys and the bad guys. If you’re not doing exactly what he wants, you’re a bad guy by definition — and nothing else counts.”
Administration officials and Republicans close to the White House indicated as of Monday afternoon that the administration was moving toward temporarily extending its current exemptions, but they stressed that could easily change.
“It is still possible that USTR and the White House could make a flurry of decisions today,” said one of the Republicans close to the White House.
Commerce Secretary Wilbur Ross and other administration officials have said in recent days that countries will have to choose between either quotas or tariffs — but the EU, Canada and Mexico have said they expect a full exemption without having to agree to such restrictions.
The process of deciding on the exclusions and exemptions has been chaotic since the departure of former White House staff secretary Rob Porter, who was heavily invested in trade policy and making sure that differing viewpoints were included in the decision-making process.
U.S. Trade Representative Robert Lighthizer, meanwhile, has had myriad policy questions on his plate, including the ongoing NAFTA talks and his upcoming trip to China later this week to talk trade.
The only country that has so far been granted a permanent exemption from the 25 percent steel tariff is South Korea, where officials agreed to cap exports of the material at 70 percent of the average amount it had been sending to the United States over the past three years. South Korea still faces the 10 percent aluminum tariff.
Some nations have indicated exactly how they will retaliate if and when Trump does impose the tariffs. The European Union last month generated a list of U.S. exports ranging from peanut butter to lipstick and yachts that would face punitive 25 percent duties on their way into the European market if Brussels is not spared. The EU’s list, which is valued at roughly $3.4 billion, is largely comprised of products from Republican states and districts that would bear the brunt of the tariff impact.
At the same time, European nations have also been working among themselves and with the United States to strike a compromise. German Chancellor Angela Merkel and French President Emmanuel Macron both traveled to the White House last week to talk face-to-face about the issue with Trump, who is still toying with the decision.
Merkel and Macron both spoke over the weekend with U.K. Prime Minister Theresa May about the “vital importance” of Europe’s steel and aluminum industries and pledged to work together with the rest of the EU to push for a compromise and a permanent exemption.
To that end, EU Trade Commissioner Cecilia Malmström also spoke again over the phone on Monday with Ross. Malmström “reiterated the EU’s position” during the call, a Commission spokesperson said, adding only that “we have to wait” for the U.S. announcement.
Tensions are similarly high with Canada and Mexico, who are in intensive trade negotiations with the United States to update NAFTA.
Both countries have repeatedly made clear that they expect to be granted a full, permanent exemption from the tariffs without having to agree to quotas or any other restrictions. But their temporary reprieve was contingent upon a successful completion of the NAFTA rewrite — and with that deal still at least a week away, it remains unclear whether Trump will make the exemption permanent or at least extend it on a temporary basis while negotiations continue.
For either of the U.S. neighbors, imposition of the duties would ratchet up trade tensions at a time when all three countries are working to wrap up a NAFTA negotiation that has already been technically and politically difficult.
"Obviously, Lighthizer knows very clearly our position and how we have to react if any measure is imposed,” Mexican Economy Secretary Ildefonso Guajardo said Friday during a visit to Washington to talk NAFTA. "I have been very clear that in this context a quota on steel won't be the best way to go.”
If the tariffs do go into effect at midnight for any of the countries involved, a key question will be whether Trump will ratchet up the pressure again after the countries inevitably retaliate, Reinsch said.
“We act, they act, that’s round one. The question will be, is [Trump] then going to start round two?” he said, noting that one round of tit-for-tat is “not that unusual” but that two would be more remarkable. “I think the trade war starts in round two.”
Nancy Cook and Jakob Hanke contributed to this report.