LISTEN TO ARTICLE 4:52 SHARE THIS ARTICLE Share Tweet Post Email

Photographer: Loren Elliott/Bloomberg Photographer: Loren Elliott/Bloomberg

Terms of Trade is a daily newsletter that untangles a world embroiled in trade wars. Sign up here.

President Donald Trump is reinstating tariffs on steel and aluminum from Argentina and Brazil, nations he criticized for cheapening their currencies to the detriment of U.S. farmers, and he again called on the Federal Reserve to loosen monetary policy.

Linking his trade agenda with his Fed criticism in an early morning tweet, he said the two South American countries “have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”

The president’s action amounts to retaliation against two nations that have become alternative suppliers of soybeans and other agricultural products to China, grabbing market share away from the U.S. Rural voters, including farmers, are a key constituency for Trump as he heads into the 2020 presidential elections.

While the steel tariffs could crimp trade, the Latin American countries gain much more shipping crops to Chinese buyers. In the first 10 months of the year, Brazil has shipped $25.5 billion in farm products including soybeans and pork to China. That’s more than 10 times the value of steel and iron product sold to the U.S.

Jair Bolsonaro Photographer: Andre Coelho/Bloomberg

Brazil’s President Jair Bolsonaro said he would talk to his economy minister before reacting to Trump’s comments on the Brazilian real and the imposition of steel tariffs. “If needed, I can also talk to Trump, I have an open channel with him,” he added as he left the presidential palace.

In the case of Argentina, soybean shipments to China totaled $2.4 billion in 2017, more than triple the value of the South American nation’s aluminum and iron pipe exports to the U.S. As the trade war between Beijing and Washington escalated, China boosted imports of the oilseed to $2.5 billion in the first 10 months of 2019, Chinese customs data show.

In a second Twitter post, Trump signaled that he wants the U.S. central bank to do something about suppressed currencies.

Argentina’s peso plunged earlier this year on election results putting a left-wing candidate in the presidency. Brazil has intervened multiple times in the past month to support its devaluing real.

Also see: Everybody Wins on Trump Tariffs as Brazil Steelmakers Rise

Trump has long grumbled about the dollar’s strength and urged the Fed to abandon decades of precedent and act to weaken the greenback. The U.S. government’s dollar policy has traditionally been directed by the Treasury Department. That has prompted fears that the U.S. could lead the world into an era of weaponized monetary policy.

While such a currency war hasn’t happened yet, Monday’s move marks the first time Trump has linked the imposition of tariffs explicitly to Fed action tied to currency movements. As such, it signifies a potential new phase in his trade wars in which foreign-exchange markets are the battleground.

Stocks, Forex Moves

The U.S. has imported about 3.8 million metric tons of steel from Brazil so far this year, most of which are slab, according to U.S. Census Bureau data. The South American nation’s steel accounts for about 3.5% of the 110 million tons consumed in the U.S. a year.

The Brazilian real strengthened 0.4% to 4.2185 per dollar at 11:23 a.m. in New York.

The reinstatement of tariffs will boost U.S. steel prices, benefiting domestic producers.

AK Steel Holding Corp. rose 6.9% in New York. U.S. Steel Corp. was up 3.8%, and Steel Dynamics Inc. gained 1.4%.

The American depositary receipts of Brazilian steelmaker Gerdau SA, which runs plants in the U.S., rose 1.4%. Shares of Usinas Siderurgicas de Minas Gerais SA rose 0.5% in Brazil.

Exports to the U.S. by Usuminas, as the Belo Horizonte-based steelmaker is known, aren’t significant enough to have an impact on the company’s financial results, Pedro Galdi, an analyst at Mirae Asset Wealth Management said by phone.

The Brazil Steel Institute, a trade group that represents domestic producers including Gerdau and Usiminas, said the tariffs could boomerang on American steelmakers because they need “semi-finished products exported by Brazil in order to operate” their mills.

The tariffs are in “retaliation against Brazil, which is not consistent with a relation of partnership between the two countries,” the industry group said in a note.

In March 2018, Trump authorized a 25% tariff on steel imports and a 10% duty on aluminum -- import barriers that heralded the start of his administration’s hawkish push on trade -- after a government report found that foreign shipments of the metals imperil national-security interests.

He then directed U.S. Trade Representative Robert Lighthizer to negotiate with countries seeking to turn their temporary tariff exemptions into permanent ones.

In August last year, he gave South Korea, Brazil and Argentina targeted relief from quotas imposed on inbound steel shipments to protect U.S. producers. The move allowed buyers to request exemptions for imports from key suppliers.

— With assistance by Shawn Donnan, Courtney Dentch, Mario Sergio Lima, Walter Brandimarte, Jonathan Gilbert, James Attwood, Pratish Narayanan, and Sabrina Valle

( Adds Brazil industry group’s comments beginning 17th paragraph. )