Donald Trump is to slap tariffs on imports of steel and aluminium from Brazil and Argentina after accusing the countries of a “massive devaluation” of their currencies that hurt American farmers.
The move by the US president sharply escalates trade tensions with the two large Latin American countries as they have ramped up their economic ties with China in recent years. It also highlights Mr Trump’s continued willingness to use metals tariffs as a negotiating tool, even though they were originally introduced last year for national security purposes.
Both Latin American countries have seen their currencies tumble over the past two years. The Brazilian real slumped to a record low against the US dollar last week, and is down nearly 10 per cent this year amid a series of interest rate cuts, rising political tensions and wider weakness in emerging markets.
Mr Trump’s decision to slap tariffs on steel and aluminium from Brazil and Argentina marks the latest twist in the tale of the metal levies, one of the US president’s signature policies.
After announcing that imports of steel and aluminium were threats to national security last year, meriting 25 per cent tariffs, the US president has pressed ahead with levies against some trading partners like the EU; applied and then withdrawn them against others like Canada and Mexico; and raised and then lowered them again as with Turkey.
Argentina and Brazil were initially shielded from the tariffs along with Australia and South Korea, but they have now become targets. Although steel prices in the US surged after an initial burst of tariffs was announced last year, they have since retreated. Several American steel producers have been forced to reduce capacity and begin laying off workers.
Mr Trump’s use of metals tariffs on national security grounds — under section 232 of the 1962 Trade Expansion Act — is being contested at the World Trade Organization and also faces legal challenges under US law.
The move by Mr Trump will be an embarrassing blow to Brazilian president Jair Bolsonaro, who has put improved relations with the US at the centre of his international and political agendas, including much closer trade ties.
Brazil’s finance minister appeared to welcome a drop in the currency last week. “I’m not worried about the high dollar,” Paulo Guedes said. “On the contrary, I think it is absolutely understandable.”
On Monday, Mr Bolsonaro said he may speak with the US president after consulting Mr Guedes. “I have an open channel with [Trump],” said Mr Bolsonaro. The Brazilian president has said he would like to see a stronger currency, but that it was “not merely a question of domestic issues”.
Between January and October this year, Brazil exported $2.2bn of steel and iron to the US, more than 9 per cent of its total exports to the country.
In Argentina, the peso has lost nearly 60 per cent of its value against the dollar in 2019, as capital controls were imposed and markets were rattled by resurgent populist politics and the country’s debt burden.
Argentina’s steel and aluminium exports account for about 3 per cent of total exports, which are dominated by agricultural commodities. After Brazil and China, the US is Argentina’s third-largest trading partner.
Agricultural exporters from Brazil and Argentina have also been taking advantage of the US trade war with China by wrenching market share from American farmers, who are facing retaliatory levies from Beijing on products like soyabeans.
The announcement comes just a week before Argentina’s president, Mauricio Macri, who strengthened ties with the US and sought to open up Argentina’s economy during his four-year term, hands power over to leftist Alberto Fernández on December 10.
Argentine officials said last year that Mr Macri’s close personal relation with Mr Trump helped to secure protection from tariffs. Argentina’s US relations are seen as likely to deteriorate under a new protectionist Peronist administration.
Mr Trump on Monday also repeated his call for the Federal Reserve to weaken the dollar to boost the US economy. “The Federal Reserve should likewise act so that countries, of which there are many, no longer take advantage of our strong dollar by further devaluing their currencies. This makes it very hard for our manufactures & farmers to fairly export their goods,” he tweeted.
Returning to his regular push for lower interest rates, the president added: “Lower rates & loosen — Fed!”.