Last week, as Storm Emma dumped snow and ice across Western Europe, US president Donald Trump fired a shot across the global trade arena that created its own red alerts and dialled up the geopolitical temperature a few notches.

The US president, determined to shake up the global trade system he believes has served the US so poorly, announced on Friday he will move to impose heavy tariffs on US imports of steel and aluminium.

The move triggered a sell-off in financial markets as US business groups warned the move would result in higher costs. If President Trump signs the executive order this week, steel imports will attract a new tariff of 25%, while aluminium imports will be subject to a 10% tariff.

In the first 12 months of his presidency, Donald Trump has abandoned the Trans-Pacific Partnership (TPP) and set about renegotiating the Nafta trade agreement with Mexico and Canada.

However, this latest move is by far the most protectionist policy decision of Trump’s presidency and has heightened fears in financial markets that the world is on the verge of a global trade war, with China, the EU and other major trading partners likely to retaliate.

While China has so far kept quiet on the issue, European Commissioner for Trade Cecelia MalmstrÖm has warned that the EU would have no choice but to respond with its own measures if Trump goes ahead with the tariffs this week.

In Washington, Trump’s top economic advisor Gary Cohn resigned on Tuesday from the administration, where he headed up the US National Economic Council. Senior Republicans have also come out to condemn Trump’s proposed tariffs, saying it could do more harm to the US economy than good.

Paul Ryan, the Republican House speaker, became the most senior member of the GOP to distance himself from Trump’s planned tariffs, saying it would threaten the positive impact of the $1.5tn in US tax reforms announced over Christmas.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance the plan,” said Ryan.

Globalisation

A native of Janesville, Wisconsin, Ryan is no stranger to the impact of globalisation after General Motors closed the doors on its Janesville assembly plant in 2008. It was the company’s oldest plant in the US, and its closure led to thousands of direct and indirect job losses in the city.

Despite Ryan’s warning, Trump this week doubled down on his plan to tariff steel and aluminium imports, saying “we’re not backing down”.

The US president went on to use the threat of these tariffs to push for greater progress on the ongoing Nafta negotiations between the US, Canada and Mexico.

“We have large trade deficits with Mexico and Canada. Nafta, which is under renegotiation right now, has been a bad deal for the US. A massive relocation of companies and jobs. Tariffs on steel and aluminium will only come off if a new and fair Nafta agreement is signed,” said Trump.

This is a significant threat by Trump. Canada is the largest exporter of both steel and aluminium to the US, while Mexico is the fourth-largest supplier to the US, with almost 10% of the market. While the focus is on steel tariffs right now, it is clear there are much wider implications for global trade on the line this week.

Trump has upped the ante and is taking an increasingly aggressive approach to try and achieve his goals for US trade via intimidation. The threat of tariffs on steel and aluminium is being used to almost bully Canada and Mexico into a new Nafta agreement, which has more favourable terms for the US, including on agricultural trade.

Trump this week made a pointed reference to Canada’s protected and restrictive agriculture sector, saying “Canada must treat our farmers much better.”

This is despite Canada being the largest importer of US agricultural goods, importing about $23bn worth of prepared foods and fresh fruit and vegetables annually.

When it comes to Mexico, US agriculture is equally reliant on its southern neighbours. Mexico imports about $18bn worth of US agricultural products every year, making it the third-most-important export market. It is an especially important market for US cheese, corn, soya beans, pork and beef.

Staging post

Overall, Trump’s latest move to level the playing field of global trade has hardened positions and escalated tensions across geopolitical lines. If the White House pushes ahead this week with plans to tariff steel and aluminium imports, the EU and China are almost certain to respond in kind.

A row over steel tariffs may just be a staging post for what could quickly escalate into a full-blown global trade war, something it must be remembered that President Trump views as “good” for US interests.

More worryingly, the events of this week indicate that the world economy may be at the beginning of a move away from a rules-based trading order, towards a new phase where global trade is much more defensive and protectionist.

Read more

Confidence thaws in global stocks as Trump set to impose steel tax

How will Trump’s tax plan affect farmers?