Tit-for-tat trade war begins after US announces tariffs | Hotter Commodities

United States President Donald Trump signed an executive order to implement tariffs on imports from Mexico, Canada, and China on Saturday February 1, sparking swift retaliation and sending world trade into uncharted territory

The tariffs – 25% on Canada and Mexico, and an additional 10% on China – are slated to take effect from February 4. Canadian crude oil, natural gas and refineries feedstock imported into the US will have a lower tariff rate of 10%, which is a recognition that Canada is America’s largest energy trading partner.

The executive order also warned that the US may increase or expand in scope the duties if tit-for-tat action was taken.

Some market observers pointed to a series of tariffs on goods including aluminium and steel under the first Trump administration. But the latest tariffs appear likely to be more extensive, impact more nations, and encompass significantly more products as a result.

President Trump said he is also considering similar tariffs on Europe as well as a lower, more universal tariff designed to raise billions to reduce the deficit and pay for social and industrial programs at home.

The announcement had been flagged well in advance and did not come as a surprise, given that tariffs had played a large role in the recent US election campaign, typically intertwined with a promise to stem the inflow of drugs and illegal immigration into the United States.

As such, the retaliatory response has been fast, with a spokesman for China’s Ministry of Commerce saying in a statement that China plans to file a lawsuit with the World Trade Organization (WTO) and “will take countermeasures to firmly safeguard its rights and interests”.

Canada has said it will impose 25% tariffs on around $106 billion of US goods, with $20 billion of goods such as pulp and paper, lumber and plastics impacted from Tuesday, and the rest, including steel and aluminium products plus electric vehicles, in three weeks’ time.

Canada’s Prime Minister Justin Trudeau also said during a news conference on Saturday that Canada was considering non-tariff measures including those related to critical minerals, energy, procurement and other partnerships.

Similarly, Mexico’s President Claudia Sheinbaum said in a post on X that after dialogue had failed, she had instructed the Secretary of Economy to implement Plan B, which includes tariff and non-tariff measures.

Still, there is a chance that the tariffs will be called off at the last minute, just as they were against Colombia after a spat over deportation flights in January.

Aluminium

This playbook is all very familiar to the aluminium industry. The sector faced Section 232 tariffs twice during the first Trump administration, leading US Midwest premiums to soar and uprooting traditional trade flows, due to the US’ dependence on Canada for aluminium.

According to the US Aluminum Association, Canada provides the US with around two-thirds of its primary aluminium needs annually because America’s own smelters are unable to produce enough to meet demand, even at full capacity. At the same time, the US relies on Mexico and Canada for around 90% of US aluminium scrap imports.

“To ensure that American aluminium wins the future, President Trump should exempt the aluminium metal supply needed for American manufacturers, while continuing to take every possible action at the US border against unfairly traded Chinese aluminium,” association president Charles Johnson said in a statement on Saturday.

High energy costs have contributed significantly to the downfall of the US smelting sector over the years.

The last smelter to be constructed in the US was in 1980, when aluminium producer Alumax and Clarendon, a unit of Marc Rich, built the Mt Holly plant in South Carolina. While a new plant is planned by Century Aluminium, which actually operates Mt Holly today, the US still relies heavily on imports.

The US-Canadian aluminium industry is highly integrated, dating back to the early 1990s. This means the impact of tariffs is not just on primary products, but extends to cars, planes, fighter jets, ammunition, armored vehicles, and packaging, among other items.

The automotive sector is also another highly inter-dependent supply chain which consumes vast amounts of aluminium, steel and other commodities. Three out of every four cars sold in America contain aluminium from Canada, while one out of every three car and truck wheels manufactured in the US contains aluminium that Rio Tinto produces in Canada. Parts cross the border sometimes more than six times before finishing in a vehicle that ends up in a sales lot in either the US or Canada.

Canada and Mexico are also the major buyers of US exports of these products, on top of being the main sources of US imports of motor vehicles and their parts.

Mexican government data shows that about half of automobiles and light trucks exported by Mexico to the United States in 2024 were made by the Big 3 automakers, General Motors, Ford and Stellantis.

Steel

Steel markets have been bracing for the impact of tariffs, with the US sector broadly cheering the prospect of additional tariffs in 2025, having benefited heavily from protectionist measures in Trump’s first term in office.

The US is the world’s largest steel importer and, despite numerous anti-dumping and countervailing duty orders, imports of most types of steel continue to increase.

US commerce Department data showed that Canada was the largest supplier of steel to the US in 2024, accounting for around 23% of its imports. Mexico meanwhile was the third-biggest supplier to America, accounting for 12% in 2024.

As with aluminium, the steel sector has dealt with US trade action before, having faced Section 232 tariffs during the first Trump administration.

Similarly, Canada caters for around half of America’s total nickel alloys needs, making it the US’ biggest supplier of products essential for its automotive and defense sectors. The US has only one nickel mine and no active refinery, with production concentrated in Indonesia at Chinese owned or operated sites.

China

It remains to be seen what the impact on China will be and how it will respond.

US Commerce Department data showed that China accounted for just 1.7% of total US steel imports in 2024 and is not a major supplier of unwrought aluminium although does provide a significant amount of plate, sheet, strips and foil.

It has already restricted exports of gallium, germanium, antimony and graphite to the United States, crimping supplies of key minerals it relies on for defence and semi-conductors.

Rare earths, which China dominates in terms of both production as well as reserves, could now be in the crossfires.

But much could still change, with government and trade officials working overtime to determine a path forward, and other countries, including in Europe, watching what the Trump administration has in store for them closely.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Read more coverage on our dedicated Hotter Commodities page here.

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