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Abu Dhabi, UAEWednesday 21 November 2018

Mexico, Canada and other countries may be exempted from tariffs as Trump softens on steel

Exemptions would be on a ‘case by case’ basis, a reversal from the policy articulated by the White House

Canadian steel may be spared from US President Donald Trump’s planned tariffs for the metal under national security ‘carve-outs’. Peter Power / Reuters
Canadian steel may be spared from US President Donald Trump’s planned tariffs for the metal under national security ‘carve-outs’. Peter Power / Reuters

The White House said on Wednesday that Mexico, Canada and other countries may be spared from President Donald Trump’s planned steel and aluminium tariffs under national security ‘carve-outs’, a move that could soften the blow amid threats of retaliation by trading partners and dire economic warnings from lawmakers and business groups.

Press secretary Sarah Huckabee Sanders told reporters the exemptions would be made on a “case by case” and “country by country” basis, a reversal from the policy articulated by the White House just days ago that there would be no exemptions to Trump’s plan.

The update came as congressional Republicans and business groups braced for the impact of expected tariffs of 25 per cent on imported steel and 10 per cent on aluminium, appearing resigned to additional protectionist trade actions as Trump signalled upcoming economic battles with China. Trump is expected to announce the tariffs on Thursday afternoon.

The looming departure of White House economic adviser Gary Cohn, a former Goldman Sachs executive who has opposed the promised tariffs, set off anxiety among business leaders and investors worried about a potential trade war.

“We urge you to reconsider the idea of broad tariffs to avoid unintended negative consequences to the US economy and its workers,” wrote 107 House Republicans in a letter to the president.

At the White House, officials were working to include language in the tariffs that would give Mr Trump the flexibility to approve exemptions for certain countries.

“He’s already indicated a degree of flexibility, I think a very sensible, very balanced degree of flexibility,” commerce secretary Wilbur Ross told CNBC. “We’re not trying to blow up the world.”

Mr Trump said other trade actions could be in the works. In a tweet, he said the “US is acting swiftly on Intellectual Property theft.” A White House official said the president was referencing an ongoing investigation of China in which the US trade representative is studying whether Chinese intellectual property rules are “unreasonable or discriminatory” to American business.

The official, who spoke on the condition of anonymity to discuss internal deliberations, said an announcement on the findings of the report — and possible retaliatory actions — was expected within the next three weeks.

Business leaders, meanwhile, continued to sound the alarm about the potential economic fallout from tariffs, with the president of the US Chamber of Commerce raising the spectre of a global trade war. That scenario, Tom Donohue said, would endanger the economic momentum from the GOP tax cuts and Mr Trump’s rollback of regulations.

“We urge the administration to take this risk seriously,” Mr Donohue said.

Mr Trump has said the tariffs are needed to reinforce lagging American steel and aluminium industries and protect national security. He has tried to use the tariffs as leverage in ongoing talks to revise the North American Free Trade Agreement (Nafta), suggesting Canada and Mexico might be exempted from tariffs if they offer more favourable terms under Nafta.

Lawmakers opposed to the tariffs, including House speaker Paul Ryan and Senate majority leader Mitch McConnell, have suggested more narrowly focused approaches to target Chinese imports. But members of Congress have few tools at their disposal to counter the president, who has vowed to fulfil his campaign pledge.

“I don’t think the president is going to be easily deterred,” said Senator John Cornyn, who has suggested hearings on the tariffs.

Senator Lamar Alexander, a fellow Republican, said Mr Trump had listened to him and others who disagree with the direction of the trade policies. “I thank him for that and he’s been a good listener. The difficulty is so far I haven’t persuaded him,” Mr Alexander said.

Republicans in Congress have lobbied administration officials to reconsider the plan and focus the trade actions on China, warning that allies such as Canada and members of the European Union would retaliate.

The EU said it was prepared to respond to any tariffs with counter-measures against US products such as Harley-Davidson motorcycles, Levi’s jeans and bourbon.