EU and China consider retaliation in response to potential Trump steel and aluminum tariffs

  • The EU is targeting products with political punch. Reportedly in its sights: items such as Harley-Davidson motorcycles, whose corporate headquarters is in House Speaker Paul Ryan's home state of Wisconsin.
  • China's Ministry of Commerce is investigating whether to limit imports of U.S. sorghum, a cereal grain used to feed livestock.
  • The Commerce Department is making a case that the dumping of cheap steel and aluminum from China and other countries puts U.S. competitors out of business, risking national security.

As the Trump administration considers what action to take on trade tariffs on steel and aluminum, European Union and Chinese officials are considering taking aim at politically strategic products made in the U.S., such as bourbon and motorcycles.

Of the options laid out by Commerce Secretary Wilbur Ross, the administration is considering the most wide-reaching penalty: slapping tariffs on all steel and aluminum imported into the U.S., not just imports from specific countries.

The EU is targeting products with political punch, revisiting a list compiled during George W. Bush-era trade disputes of symbolic American brands.

Potentially in the EU's sights: items such as Harley-Davidson motorcycles, whose corporate headquarters is in House Speaker Paul Ryan's home state of Wisconsin. Bourbon is another target, having enjoyed a surge in exports to the EU. Senate Majority Leader Mitch McConnell's home state of Kentucky exported $154 million worth of bourbon to the EU, up from $128 million in 2016, according to data from the International Trade Commission.

Agriculture products such as cheese, orange juice, tomatoes and potatoes are also targets for retaliation.

"The EU stands ready to react swiftly and appropriately in case our exports are affected by any restrictive trade measures from the U.S.," a European Commission source tells CNBC.

House Speaker Paul Ryan, a Republican from Wisconsin, speaks during a news conference following a tour of the Harley-Davidson Inc. facility in Menomonee Falls, Wisconsin, U.S.
Daniel Acker | Bloomberg | Getty Images
House Speaker Paul Ryan, a Republican from Wisconsin, speaks during a news conference following a tour of the Harley-Davidson Inc. facility in Menomonee Falls, Wisconsin, U.S.

The counterpunch from China could land harder because of the scale of trade between the two countries and the reliance of American farmers on China as an export destination. China's Ministry of Commerce is already investigating whether to limit imports of U.S. sorghum, a cereal grain used to feed livestock, in response to previous tariffs from the White House on solar panels and washing machines.

Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, called the sorghum investigation a "shot across the bow," and expects more reaction from China when the steel and aluminum actions are unveiled.

In the weeks following the publication of the possible tariff options, Chinese high-ranking officials have visited Washington to try to smooth over trade tension.

Li Qiang, an analyst at JCI Intelligence, said China is trying to mend trade relations with the U.S. while also preparing for a trade war. Qiang said China would target airplane manufacturing or U.S. soybeans — "the ballast stone of Sino-U.S. trade" — if the tariffs' cost to China exceeded $10 billion.

The Commerce Department is using a provision of the 1962 Trade Expansion Act, Section 232, to make a case that the dumping of cheap steel and aluminum from China and other countries puts U.S. competitors out of business, risking national security.

"One of the big concerns is if you use it just to impose trade restrictions for economic purposes, rather than national security purposes, then you are sort of defining our economic security as our national security and every other country can do the same thing," said Rufus Yerxa, president of the National Foreign Trade Council, which represents multinational companies on trade issues.

Senate Majority Leader Mitch McConnell, R-Ky., sits behind a barrel of Kentucky bourbon.
Bill Clark | CQ Roll Call | Getty Images
Senate Majority Leader Mitch McConnell, R-Ky., sits behind a barrel of Kentucky bourbon.

In a memo to the Commerce Department, the Department of Defense notes that the U.S. military requires only about 3 percent of U.S. production for steel and aluminum and cautioned against broad action. "DoD continues to be concerned about the negative impact on our key allies," it said, and "targeted tariffs are more preferable than a global quota or tariff."

While tariffs could boost the domestic steel and aluminum industries, others say the broad impacts could weaken the broader economy.

"The biggest sectors of steel consumption are in the construction industry, the auto industry, oil and gas industry, all of which need these products to produce competitive products," warns Yerxa.

Trump has until April 11 to announce a decision on steel imports and until April 19 for aluminum. He may choose to announce his decisions a month before that, using the issue to swing Republican votes in the upcoming Pennsylvania special congressional election. A rally is tentatively scheduled for March 10, according to sources with knowledge of the planning.