13 March 2025: The U.S. places tariffs on imports of steel and aluminium

The United States imposed tariffs on its imports of steel and aluminium yesterday, and Donald Trump informed reporters that no exceptions or exemptions would be granted.

Canada, which sells 80% of its production to the U.S. and the European Union, with 19% immediately announced retaliatory measures. At the same time, the Prime Minister informed Parliament that he would not be following suit, labelling retaliation “disappointing.”

The UK is working on a wider trade deal with President Trump, and Sir Keir Starmer does not feel that it is currently in the country’s best interests to adopt any form of retaliation.

Earlier Business and Trade Secretary Jonathan Reynolds said the UK was “focused on a pragmatic approach and, rapidly, negotiating a wider economic agreement with the US to eliminate additional tariffs and to benefit UK businesses and our economy”.

Starmer met with US President Donald Trump in Washington last month to discuss the matter.

Trump signalled the potential for a “great” post-Brexit trade accord, one that Britain has been seeking since it left the EU at the start of the decade.

Following that meeting, British businesses voiced cautious optimism the UK might have avoided the metals tariffs.

“We remain resolute in our support for UK industry,” Reynolds said yesterday, also calling the tariffs “disappointing”.

British steel exports to the U.S. are worth around £400 million annually, and the UK’s steel industry body had described the tariff as a “devastating blow”.

Following Trump’s announcement of 25% levies last month, the UK responded by unveiling a multibillion-pound plan to protect its steel industry. Starmer said the government was stumping up to £2.5 billion ($2.7 billion) to help support the sector.

Labour backbench MPs are threatening open rebellion over the Chancellor’s plans to cut the welfare budget by more than £2.5 billion. In a separate announcement in Parliament yesterday, the Prime Minister told MPs that the current system that he inherited is broken and indefensible.

With any reform of the welfare system, a government risks failing to protect the most vulnerable members of society.

The Chancellor has earmarked several billion pounds in welfare cuts, and the Treasury will present its plans to the Office for Budget Responsibility in the coming days.

The pound is still volatile but well-supported overall as the markets consider the effect of the disruption to global trade.

It climbed to 1.2989 yesterday and closed at 1.2962. It is expected to challenge the important 1.30 level in the coming days.

Outside of Donald Trump’s economic policy which may be driving the country into recession, there was some good news for the Federal Reserve yesterday as headline inflation fell to 2.8% last month, following January’s rise to 3%.

The FOMC is still unlikely to cut interest rates at its meeting next week as, considering the bigger picture, there is still uncertainty over the President’s introduction of tariffs on steel and aluminium imports.

Research published yesterday shows that the introduction of tariffs already announced could lower U.S. GDP by as much as 0.75%.

On Monday, Wall Street clocked one of its worst trading days since 2022, driven by Trump’s economic and trade policies, including the tariff war, leading to global market volatility and geopolitical tensions.

Investors and market pundits are worried that the trade war and uncertainties in the markets could push the US economy into a possible recession. Trump, however, has ruled out the possibility, offering vague reassurances.

“I hate to predict things like that,” Trump told Fox News when asked if a recession was coming in 2025. “There is a period of transition because what we’re doing is very big, we’re bringing wealth back to America,” he said. “It takes a little time.”

Despite volatility in the market caused by even the mention of the word “tariff”, which Trump has called one of the favourite words in his admittedly limited lexicon, economists are split on the need for the U.S. to stand up for itself in trade negotiations.

Several members of academia believe that in theory, the world’s largest consumer should use its economic muscle to both negotiate the best deals for its consumers and crush illegal businesses like people smuggling and narcotics.

However, those economists are prepared to ignore the short-term consequences which may lead to a recession.

Fed Chair Jerome Powell believes that a recession is easier to get into than out of.

While headline inflation was falling below 3% in February, core inflation also fell but remained above 3%, falling to 3.1% from 3.3% in January.

The declines were greater than economists expected, according to market analysts. Yet, inflation is still above the Federal Reserve’s 2% target. And most economists expect inflation will remain elevated this year as Trump’s tariffs kick in.

The dollar is still subject to the uncertainty created by the imposition of tariffs. Trump shrugged off retaliatory moves by the EU and Canada, but the market didn’t believe his rhetoric.

The Greenback fell to a low of 103.25 before bouncing to close at 103.59 as short-term traders took profit on short positions.

The Eurozone appears to be plagued by bad news even when developments in the U.S. are not especially aimed at its economy.

Europe exports less than 20% of its steel and aluminium production to the U.S. and with Trump’s battle to see the Union raise defence spending to “acceptable” levels having been acknowledged, work could begin on a longer-term treaty on trade.

Trump’s “shock and awe” tactics are influencing ECB officials as the Bank’s President, Christine Lagarde, told reporters that hitting the eurozone’s inflation target would become more difficult due to shocks such as trade tariffs and climate change.

Last week, the ECB signalled a possibly slower pace of rate cuts after cutting its benchmark interest rate by 25 basis points to 2.5%. Lagarde also warned that global volatility meant it would be “impossible” to guarantee that the target rate of 2% would always be met.

The ECB appears to be fixated on the so-called neutral rate despite disagreements about where it is. Arch hawk, Isabel Schnabel believes that it was met last week, while her colleague and sparring partner, Philip Lane, believes that two more cuts are needed for rates to not be restrictive upon growth.

The uncertainty level is exceptionally high according to Lagarde, adding that trade fragmentation is likely to lead to larger and potentially disruptive price rises. However, we also face shock on the other side of the economy, with rising defence spending and climate amplifying those existing forces.

Mário Centeno, the Governor of the Bank of Portugal, expressed a more dovish view. The eurozone economy expanded by just 0.9% last year, a third of the growth rate recorded by its U.S. counterpart, and the ECB’s economists expect it to continue at that pace this year.

Eurozone countries remain committed to cutting net government expenditure despite recent pledges to ramp up defence investments, senior EU officials said on Monday.

Eurogroup President Paschal Donohoe told reporters that the single currency area’s “overall fiscal stance” this year is still expected to be “slightly contractionary,” as previously agreed by eurozone ministers in December.

“Does that December statement and that guidance still stand? It does,” said Donohoe, who also serves as Ireland’s Finance Minister.

Donohoe added that ministers, nevertheless, acknowledge that “we are in a very, very different world” compared to the one before Donald Trump’s return to the White House in January, which upended decades-long assumptions about Washington’s commitment to European security.

Overall, the European Union is at “sixes and sevens” about many topics, which highlights many issues that have been building for a considerable amount of time. Until European Commission President Ursula von der Leyen can represent the region speaking clearly about a range of topics, the region will remain confused and muddled.

The Euro lost a little ground yesterday as traders were concerned about the effect of tariffs on the EU steel and aluminium industries. Trump’s tariffs served as a timely reminder that the Union needs to reinvent itself as less dependent on heavy industry since the world is shifting towards service-based businesses.

The common currency fell to a low of 1.0875 and closed at 1.0884 as traders tried to get ahead of sell orders that sat just below the 1.10 level.

Have a great day!