China Threatens To Retaliate If US Imposes Metal Tariffs

It’s not like anyone expected otherwise.

Just hours after the Trump administration received a green light from the Commerce Department to impose steep tariffs on aluminium and steel imports on national security grounds across the board, but especially on China and Russian, China threatened with immediately retaliation in the latest escalation of the growing trade war between the two superpowers.

In an unexpected announcement on Friday, commerce secretary Wilbur Ross recommended a possible global tariff of at least 24% on imports of steel and 7.7% on aluminum after investigations into trade in both metals determined that import surges seen in recent years “threaten to impair [US] national security.”

Responding to the unprecedented Commerce recommendation which many interpreted as the first official salvo in global trade wars, Wang Hejun – chief of the trade remedy and investigation bureau at China’s Ministry of Commerce – said imposing tariffs on such grounds was reckless.

Quoted by the FT,  he said that “The spectrum of national security is very broad and without a clear definition it could easily be abused,” and added that “if the final decision from the US hurts China’s interests, we will certainly take necessary measures to protect our legitimate rights.”

For now the threat of “nuclear” trade war seems to be contained: analysts say Beijing is wary of escalating any trade disputes for fear of damaging its export-dependent economy, and so will focus any retaliation on specific sectors — most likely particular agricultural goods such as soybeans, for which China is the US’ largest export market. Earlier this month, Beijing launched an anti-dumping investigation into US exports of sorghum, an animal feed.

For the moment I think China will just put out harsher rhetoric,” said Bo Zhuang, an economist at consultancy Trusted Sources. “Agricultural sector retaliation is more likely since (China’s) food price inflation is low. The next possible step will be going on further with a soybean and corn investigation.”

Still, expectations of only a “cold” trade war may soon be dashed, as Friday’s action shows that trade hardliners in the Trump administration are eager to take action against China “after months of internal debate” according to the FT.

One option presented by the commerce department on Friday was a targeted tax on steel and aluminium imports from China and other countries like Brazil and Vietnam. A third option would impose quotas to reduce metals imports from all countries to far below the level of 2017.

But the recommendations illustrate how Mr Trump’s desire to hit China, which the US steel industry blames for a collapse in metal prices in recent years, may result in collateral damage for US allies and invite retaliation.

Meanwhile, as China plans its response, European officials in Brussels are already drafting their retaliatory measures aimed at politically sensitive US products like Kentucky bourbon and Wisconsin dairy products, which will be implemented if Trump opts for a global quota or tariff system.

As a reminder, Trump has until April to decide whether to adopt any of the recommendations, Ross said. The long-awaited results of the “Section 232” investigations into aluminium and steel imports caused shares in major US producers to rise sharply on Wall Street on Friday, while companies in the materials sector slumped.

In what appeared to be a jusitification of imminent trade wars, Trump said he was convinced that imposing tariffs would “create a lot of jobs” during a meeting with members of Congress, and dismissed warnings that such measures in the past had hurt more than they had helped by causing higher costs for many companies.

“I want to keep prices down but I also want to make sure that we have a steel industry and an aluminium industry and we do need that for national defence,” Mr Trump said. “If we ever have a conflict we don’t want to be buying steel [from] a country we are fighting.”

In its report, the commerce department stated that Canada is the top supplier of both metals to the US, suggesting the NAFTA member may – ironically – suffer the most from any new protectionist measures. The northern US neighbour has long been treated as part of the US defense industrial base along with countries like the UK and Australia. But whether Canada or any other allies would be exempted from the proposed tariffs remains unclear, according to the FT.

As for China, it was “only” the fourth-largest supplier of aluminum to the US in 2017, and accounted for less than 10% of imports; it was also the 11th-largest steel supplier over the same period, with a roughly 2% share of US imports.

The US commerce department argued that the rapid rise in China’s production of steel and aluminium in recent years — it now produces more than half of global output of both metals — has depressed international prices.

While the threat of a sharp escalation in trade tensions remains low for now, in commentary from SMBC Nikko Securities, the bank said that the proposal to restrict steel imports “could lead to a chain of higher tariffs imposed by other nations” resulting in dramatic imbalances in global commodity trade and prices.

While the brokerage expects direct impact on Japanese steel industry to be limited, it admits it is difficult to gauge the effect on international markets given details yet to be decided, and adds that the risk is that other countries shipping steel to U.S. begin selling cheaply on Japan’s export markets; in effect a sharp escalation to trade wars in which countries not targeted by the US scramble to take away market share from dominant trade partners.

Source: Zerohedge – China Threatens To Retaliate If US Imposes Metal Tariffs

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