Trump threatens further tariffs as EU, Canada retaliate for those already in place

By David Lawder, Andrea Shalal and Jarrett Renshaw

WASHINGTON (Reuters) -Donald Trump threatened on Wednesday to escalate a global trade war with further tariffs on European Union goods, as major U.S. trading partners said they would retaliate for trade barriers already erected by the U.S. president.

Just hours after Trump's 25% duties on all U.S. steel and aluminum imports took effect, Trump said he would impose additional penalties if the EU follows through with its plan to enact counter tariffs on some U.S. goods next month. "Whatever they charge us, we're charging them," Trump told reporters at the White House.

Trump's hyper-focus on tariffs has rattled investor, consumer and business confidence and raised recession fears. He has also frayed relations with Canada, a close ally and major trading partner, by repeatedly threatening to annex the neighboring country. 

Canada, the biggest foreign supplier of steel and aluminum to the United States, announced 25% retaliatory tariffs on those metals along with computers, sports equipment and other products worth $20 billion in total. Canada has already imposed tariffs worth a similar amount on U.S. goods in response to broader tariffs by Trump.

"We will not stand idly by while our iconic steel and aluminum industries are being unfairly targeted," Canada's Finance Minister Dominic LeBlanc said. 

Canada's central bank also cut interest rates to prepare the country's economy for disruption.

Trump's action to bulk up protections for American steel and aluminum producers restores effective tariffs of 25% on all imports of the metals and extends the duties to hundreds of downstream products, from nuts and bolts to bulldozer blades and soda cans. 

U.S. Commerce Secretary Howard Lutnick said Trump would impose trade protections on copper as well.

EU LESS EXPOSED

The 27 countries of the European Union are less exposed, as only a "small fraction" of targeted products are exported to the United States, according to Germany's Kiel Institute. 

The EU's counter-measures, due to take effect next month, would target up to $28 billion worth of U.S. goods like dental floss, diamonds, bathrobes and bourbon - which likewise account for a small portion of the giant EU-U.S. commercial relationship. Still, the liquor industry warned they would be "devastating" on its sector.

Nevertheless, Commission President Ursula von der Leyen told reporters she had tasked Trade Commissioner Maros Sefcovic with resuming talks with U.S, officials on the matter.

"It is not in our common interest to burden our economies with such tariffs," she said.

At the White House, Trump said he would "of course" respond with further tariffs if the EU followed through on its plan. With Irish Prime Minister Micheal Martin at his side, Trump criticized the EU member country for luring away U.S. pharmaceutical companies.

China's foreign ministry said Beijing would safeguard its interests, while Japan's Chief Cabinet Secretary Yoshimasa Hayashi said the move could have a major impact on U.S.-Japan economic ties.

Close U.S. allies Britain and Australia criticized the blanket tariffs, but ruled out immediate tit-for-tat duties.

Brazil, the No. 2 provider of steel to the United States, said it would not immediately retaliate. 

STOCKS STEADY, COMPANIES SPOOKED

With Wednesday's tariff increase well flagged in advance, global stocks were barely changed on Wednesday.

But the back and forth on tariffs has left companies unnerved, and producers of luxury cars and chemicals painted a gloomy picture of consumer and industrial health. More than 900 of the 1,500 largest U.S. companies have mentioned tariffs on earnings calls or at investor events this year, according to LSEG data.

"We are in a trade war and when a trade war begins, it tends to sustain itself and feed itself," Airbus CEO Guillaume Faury said on French television.

Shares in German sportswear maker Puma lost almost a quarter of their value after earnings underscored concerns that trade concerns are curbing American spending.

U.S. steel producers welcomed Wednesday's move, noting Trump's 2018 tariffs had been weakened by numerous exemptions. The cost of aluminum and steel in the United States hovered near recent peaks.

JP Morgan's chief economist forecast a 40% chance of a U.S. recession this year and lasting damage to the country's standing as a reliable investment destination if Trump undermines trust in U.S. governance.

A steep U.S. stocks selloff in March has wiped out all of the gains notched by Wall Street following Trump's election.        

FRAYED RELATIONS WITH CANADA

The escalation of the U.S.-Canada trade war occurred as Prime Minister Justin Trudeau prepares to hand over power to his successor Mark Carney, who won the leadership race of the ruling Liberals last weekend.

"I'm ready to sit down with President Trump at the appropriate time, under a position where there's respect for Canadian sovereignty and we're working for a common approach," Carney said while touring a steel plant in Ontario.

Other Canadian officials are due to meet with U.S. officials in Washington on Thursday.

The U.S. national anthem has been booed at hockey games and some stores removed U.S. products from their shelves, even before the duties took effect. Travelers are steering clear of the United States, with bookings down 20% from a year ago.

Canadian Energy Minister Jonathan Wilkinson told Reuters that Canada could impose non-tariff measures such as restricting oil exports to the U.S. or levying export duties on minerals if U.S. tariffs persist.     

(Reporting by David Lawder and Andrea Shalal in Washington; additional reporting by Jarret Renshaw and Ismail Shakil in Ottawa; Philip Blenkinsop in Brussels, Mark John in London, David Ljunggren in Ottawa, Marcela Ayres in Brasilia, Jarrett Renshaw and Arathy Somasekhar in Houston, Shubham Kalia and Gnaneshwar Rajan in Bengaluru, Doyinsola Oladipo in New York and Renju Jose in Sydney; Writing by Andy Sullivan; Editing by Christina Fincher, Toby Chopra and Alistair Bell)