Donald Trump promises US friends 'flexibility' as trade war warnings

President Donald Trump offered the prospect of relief from steel and aluminum tariffs to countries that "treat us fairly on trade" on Thursday, a gesture apparently aimed at renewing pressure on Canada and Mexico to give ground in separate trade talks.

Trump was expected to sign a proclamation imposing 25 percent tariffs on steel imports and 10 percent on aluminum on Thursday, but this could slide into Friday. The range of potential exemptions for allies and for industries has made the final outcome unpredictable.

In addition to exemptions, there could be a consultation period that would lead to intense lobbying by industry and a growing group of disgruntled Republican lawmakers who oppose the tariffs proposed by their fellow Republican president.

"We have to protect & build our Steel and Aluminum Industries while at the same time showing great flexibility and cooperation toward those that are real friends and treat us fairly on both trade and the military," Trump said in a post on Twitter.

Talk of tariffs has raised the prospect of a global trade war and hit stock markets hard. Both the European Union and China have said they would retaliate against action by the United States, as have Mexico and Canada. The US neighbors are engaged in so far fruitless talks with Washington to renegotiate the North American Free Trade Agreement.

"If Donald Trump puts in place the measures this evening, we have a whole arsenal at our disposal with which to respond," European Financial Affairs Commissioner Pierre Moscovici said.

Counter-measures would include European tariffs on US oranges, tobacco and bourbon, he said. Harley Davidson motorcycles have all been mentioned, targeting the home state of House of Representatives Speaker Paul Ryan.

"We want Congress to understand that this would be a lose-lose situation," Moscovici told BFM TV.

Canadian Prime Minister Justin Trudeau sought to strike a soothing tone on Thursday, saying there was a "level of confidence" that the country's close relationship with the United States will protect it from US tariffs.

Trudeau's negotiators in the NAFTA talks have rejected the American proposals to link the tariffs and the trade talks, and an attempt by Washington to split Canada and Mexico has also been rejected.

Even as Trump threatened tariffs and his NAFTA partners, 11 nations gathered in Chile to sign a landmark Asia-Pacific trade pact, one that Trump withdrew from on his first day in office in January last year.

Trump, who won office after a career in real estate and reality TV, has long touted an economic nationalism, promising to bring back jobs to America and save the country from trade deals he views as unfair. That has put him at odds with many in his Republican Party.

China steels itself for a response

Beijing, which until now had kept largely silent on the issue, sharpened its rhetoric significantly. One lever that China has is US agricultural exports and it has said in the past that it could target soybeans.

"Especially given today's globalization, choosing a trade war is a mistaken prescription. The outcome will only be harmful," Foreign Minister Wang Yi said on the sidelines of an annual meeting of China's parliament. "China would have to make a justified and necessary response."

China had a record $375.2 billion goods surplus with the United States last year.

Trade tensions between the world's two largest economies have risen since Trump took office, and although China accounts for only a small fraction of U.S. steel imports, its massive industrial expansion has helped create a global glut of steel that has driven down prices.

Trump's administration has faced growing opposition to the tariffs from prominent congressional Republicans and business leaders worried about their potential impact on the economy.

The White House has said there could be a 30-day tariff exemption for Mexico and Canada - and some other countries - based on national security.

A White House official linked any extension of the exemption to progress in the talks to renegotiate NAFTA. The talks were launched last year after Trump said Washington would withdraw from the 1994 deal if it were not reworked to better favor American interests.

In Brussels, European Commission Vice President Jyrki Katainen said US protectionism would be bad for America itself.

"We don't need to go to the 1930s. It's enough to go to the beginning of the 2000s when the US authorities imposed steel tariffs for Europe. It meant in practice that in the US they lost thousands and thousands of jobs," Katainen said.

Most economists and trade specialists say they doubt the steel and aluminum tariffs alone would trigger a global trade war, but point to the risk of further US measures against China as a major tipping point. Trump has also threatened to impose hefty tariffs on European car exports if the EU does take retaliatory measures.