By Josh Zumbrun in Washington, Paulo Trevisani in Brasília and Amrith Ramkumar in New York
WASHINGTON -- President Trump said he would raise tariffs on steel and aluminum imports from Brazil and Argentina, surprising financial markets and opening a new front in the global trade war.
"Brazil and Argentina have been presiding over a massive devaluation of their currencies, which is not good for our farmers," the president said in a Twitter post Monday. "Therefore, effective immediately, I will restore the Tariffs on all Steel & Aluminum that is shipped into the U.S. from those countries."
The White House didn't immediately release an order outlining the changes, leaving key details unclear. The Trump administration had granted waivers to both countries from global tariffs of 25% on steel and 10% on aluminum that it first imposed in 2018, citing threats to U.S. national security.
Weaker currencies in Brazil and Argentina make their crops cheaper than U.S. farm goods, creating another problem for American farmers hard hit by the Trump administration's trade action against China.
With Beijing ordering companies to scale back purchases of U.S. farm goods, Brazil's soybean farmers have been a major beneficiary -- supplying 77% of China's soybeans in the nine months ended in May, according to the U.S. Department of Agriculture, from about 40% previously.
Few economists and analysts agreed with President Trump's claim that the two countries have been manipulating their currencies.
Currency manipulation occurs when countries purchase U.S. dollars to weaken their own currencies, making goods on international markets artificially cheaper. Neither Brazil nor Argentina has been featured in the U.S. Treasury department's currency report, the official vehicle for designating nations as manipulators.
Both currencies have fallen steadily amid lackluster economic growth and political uncertainty, rather than government action to depress the exchange rate. Argentina has been facing a severe economic and currency crisis that began last year.
"Brazil has had a free-floating currency for a long time now and that isn't changing," said economist Carlos Kawall, chief researcher at ASA Bank in São Paulo. "The real is weakening because interest rates are going down and the dollar is strengthening against emerging-market currencies."
In recent months, both Brazil and Argentina have instead taken steps to sell dollars from their reserves to support their plummeting currencies, the opposite of buying dollars as currency manipulators do.
"Of course Brazil doesn't manipulate the currency," said Monica de Bolle, senior fellow at the Peterson Institute for International Economics, nor does Argentina, she said. She added that Mr. Trump's gambit could backfire if Brazilian and Argentine exports are hurt. "Then their currencies will inevitably weaken."
Brazil's government is discussing the issue with U.S. government officials, the country's Foreign Ministry said. "The administration will work to defend Brazil's trade interests and secure commerce flow with the U.S." Brazilian President Jair Bolsonaro said he'd discuss Mr. Trump's measure with his economy minister and reach out to the American president if necessary. "I have an open channel of communication with Trump," he said to reporters Monday.
Argentine Foreign Minister Jorge Faurie spoke with U.S. Commerce Secretary Wilbur Ross by telephone Monday to try to avoid an increase in the tariffs, said a ministry spokesman, who declined to provide more details. Argentina's steel or aluminum producers associations had no immediate comment.
The move to ratchet up trade tensions caught markets off guard, especially as the Trump administration has moved in recent days to secure moves to secure a "phase one" deal with China and pushes for congressional approval of a new North American trade pact.
"This took people by surprise," said Mohit Bajaj, director of exchange-traded fund trading solutions at WallachBeth Capital. "I wouldn't be surprised if people are willing to take an earlier step to get out of positions just in case something might happen toward the end of the year."
U.S. stocks fell for the second consecutive session Monday, with the S&P 500 slipping 0.9% for its largest one-day drop since early October. The Dow Jones Industrial Average fell 1%. The declines came after figures from the Institute for Supply Management showed domestic factory activity slowed further in November, missing expectations and damping hopes for a rebound in the sector.
U.S. manufacturing and agriculture have slumped amid the continuing trade dispute, rather than being boosted as intended by the tariffs, and the stock market has typically declined on days when trade tensions increase. Many companies and economists have blamed uncertainty in U.S. trade policy as causing a decline in investment. The industrial slump has also pushed down domestic aluminum and steel prices amid muted demand and steady supply, analysts said.
Shares of domestic metal producers have declined for months. They had a mixed reaction to the announcement of new protections for the industry, with aluminum producer Alcoa Corp. paring an earlier advance to close down 0.1% and U.S. Steel Corp. rising 4.2%. The stocks are down 36% and 41%, respectively, in the past year.
The latest action "underlines the whole malaise we're seeing on the trade front," said Edward Meir, a consultant focused on metals at brokerage ED&F Man Capital Markets. "We're looking at a very dicey situation in December... I don't have a good feeling about it," he said.
Mr. Trump has previously raised and lowered metal tariffs on Turkey and other countries in moves attributed to everything from foreign-exchange policy abroad to the detention of an American evangelical pastor in Turkey. The legal basis for the tariffs, however, is a Commerce Department report saying global steel and aluminum imports threaten U.S. national security.
The Brazil Steel Institute, which represents the country's producers, said the decision to levy tariffs is "retaliation" that goes against the two countries' partnership and will hurt U.S. steelmakers that need semifinished exports from Brazil to operate their own plants.
Brazil accounts for nearly two-thirds of the imported steel slab coming into the U.S. One of the biggest users of Brazilian slab in the U.S. is ArcelorMittal SA., which operates a rolling mill in Calvert, Ala., under a joint venture with Japan's Nippon Steel Corp. ArcelorMittal didn't immediately respond to a request for comment on the tariff move.
The Trump administration has used a national security law known as Section 232 to impose the tariffs. Many U.S. lawmakers have criticized the use of the law, which is facing a federal court challenge, as well as challenges at the World Trade Organization. The court challenges argue that the administration hasn't followed legislative timelines and procedures in imposing the tariffs and has penalized countries and allies that aren't always accused of shipping dumped or subsidized steel.
"There is not even a pretense of 'national security' with these tariffs" against Brazil and Argentina, said Chris Krueger, managing director of the Cowen Washington Research Group. "This action is ripe for retaliation and threatens to reshape currency relationships and the rules of the game for foreign exchange markets."
Steel and aluminum tariffs were proposed globally in 2018 in a move that preceded the trade war on China. Argentina and Brazil quickly hammered out deals with the Trump administration to obtain exemptions to the tariffs.
To avoid the tariffs, the two countries agreed their steel and aluminum imports would be subject to duty-free quotas. Other economies, including the EU and China, have long been subject to the duties
--Bob Tita in Chicago and Will Mauldin in Washington contributed to this article.
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