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Trump's steel tariffs will barely hurt China and might start a trade war with European allies

    • The 28-nation European Union exported 5.3 million tons of steel to the US in 2017, second only to Canada and much more than China.
    • In dollar terms, it was the largest source of US steel imports last year at a value of $6.6 billion.
    • The EU would be the among the biggest losers from Trump's steel tariffs.
German Chancellor Angela Merkel and U.S. President Donald Trump arrive for a group photo at a G7 summit on May 26, 2017 in Taormina, Italy.
Getty Images
German Chancellor Angela Merkel and U.S. President Donald Trump arrive for a group photo at a G7 summit on May 26, 2017 in Taormina, Italy.

President Donald Trump has repeatedly singled out China for taking advantage of the U.S. in trade, but his unilateral move to impose steel tariffs will likely hurt close allies in Europe more than Beijing.

While Chinese steel exports to the U.S. are already subject to heavy trade restrictions, the European Union has been largely spared by Washington – until now, it seems.

German Economy Minister Peter Altmaier and EU Trade Commissioner Cecilia Malmstrom are in Washington this week to convince Trump to provide the 28-nation bloc with a tariff exemption.

The president has already provided Canada and Mexico with exemptions, and he is allowing other countries to make their case as well.

But Trump has made clear that only "real friends" of the U.S. will avoid tariffs.

What's unclear is whether or not Trump considers the EU a "real friend." Although the trade bloc is made up of Washington's closest NATO military allies, the president has criticized nations such as Germany, the EU's largest economy, for not spending enough on defense and for its large trade surplus with the U.S.



The two sides have until Friday, when the steel tariffs go into effect, to reach some sort of agreement.

More steel imports from EU than China

The Europeans have a lot to lose from Trump's steel tariffs. The EU exported 5.3 million metric tons of steel to the U.S. in 2017, second only to Canada. In dollar terms, it was the largest source of U.S. steel imports last year at a value of $6.6 billion.

China, on the other hand, ranks No. 10. Its steel imports to the United States have been declining for years because they are already subject to stiff trade penalties. Last year, Beijing exported about 824,000 metric tons of steel to the U.S. at a value of a little more than $1 billion.

Trump may not be inclined to give the EU a break given that Germany, an export powerhouse which has long been a target of the president's ire, is by far the largest source of steel imported to the U.S. from European countries.

Due to the volume of its steel exports to the U.S., the EU would suffer more from Trump's tariffs than China. When the Commerce Department recommended a 24 percent tariff on steel in January, it said this would reduce steel imports by 37 percent.

Using that 37 percent figure as a baseline, the EU would see its steel imports to the U.S. fall by nearly 2 million metric tons at a loss of $2.4 billion. Since Canada received an exemption, the EU would be the biggest loser in sheer dollar terms from Trump's steel tariffs. China, by comparison, would lose just under $400 million in steel exports to the U.S.

In fact, the bloc probably stands to lose even more than that since the president decided to be tougher than the Commerce Department and impose a 25 percent tariff.

The EU's main steel lobby, Eurofer, estimates that the tariffs could result in direct job losses of up to 20,000 and indirect job losses of up to 140,000 in Europe.

EU prepares for trade war

European officials have reacted with indignation at the tariffs, citing the Continent's long-standing military alliance and close economic ties to the United States. Brussels has warned of a trade war and is now preparing for one.

"The EU has been a close security ally of the US for decades. We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk," European Commission President Jean-Claude Juncker said. "The EU will react firmly and commensurately to defend our interests."

Last Friday, the European Commission, the executive body of EU, published a long list of American products, worth about $3.4 billion in annual trade, that it would subject to penalties if Trump moves forward with steel tariffs. The products include everything from orange juice to sailboats.

Trump, for his part, has threatened to impose tariffs on European, primarily German, car imports to the U.S. if the EU moves against American companies.



EU officials also plan to challenge the legality of Trump's tariffs at the World Trade Organization if the 28-member bloc does not receive an exemption. Trump imposed the tariffs on national security grounds, invoking a legal provision that is controversial and rarely used.

But even if the WTO were to rule in the EU's favor, that may not be the end of the conflict. The Trump administration might simply decide to ignore the organization's decision. Such a move would undermine the institutions and laws that govern global trade.

Indeed, Trump threatened to pull the U.S. out of the WTO during his presidential campaign. In February, he called the WTO a "catastrophe" for the U.S. and said the organization "makes it almost impossible for us to do good business."

Negotiated solution still possible

Though the rhetoric has been tough on both sides of the Atlantic, there are signs that a compromise is still possible. Commerce Secretary Wilbur Ross sought to reassure U.S. allies, telling CNBC that the White House is "not trying to blow up the world" with tariffs.

"We're not looking for a trade war. We're going to have very sensible relations with our allies," Ross said. "We hope and we believe that at the end of the day, there will be a process of working with the other countries that are our friends."

And the president himself has suggested that he might compromise if the EU agrees to make change certain trade practices that he finds objectionable.

Germany's economy minister, after holding talks with Ross on Monday, expressed optimism that a solution could be reached this week. Berlin has indicated that it's willing to compromise with Trump to avoid a trade war.

In the end, however, the EU sets trade policy for the 28-member states, including Germany. And Malmstrom has made plain that she will "stand up to bullies," and Brussels will retaliate against the U.S. if pushed to do so.

"We hope that will not be the case of course, because nobody has an interest of escalating this situation, but if we have to do that, that's what we will do," Malmstrom said.