Date of publication: 12 February 2025
Olena Omelchenko, Partner, Head of International Trade Practice
Source: European Pravda
A full-scale trade war, with potentially severe consequences for Ukraine, could escalate after President Donald Trump’s announcement on February 11.
On that day, the White House announced the reinstatement of a 25% tariff on steel and aluminum imports. This measure was framed as a safeguard for American steel and aluminum industries, which, according to the administration, had suffered from unfair trade practices and global dumping.
This tariff was justified by the claim that foreign governments were subsidizing steel and aluminum production on a large scale. There was no mention of which countries were involved in such practices by the White House, nor any evidence to support its claims.
Nevertheless, the additional tariffs were applied indiscriminately to imports from all countries – including, of course, Ukraine.
Is this decision aligned with U.S. international obligations?
The World Trade Organization (WTO) established clear rules and procedures to protect domestic industries from dumped, subsidized, and surging imports.
Anti-dumping and anti-subsidy measures under WTO rules require formal investigations of specific countries and companies that engage in unfair competition. Typically, these investigations take about a year, during which all parties involved must have the chance to defend their interests.
Washington, however, opted to act unilaterally, invoking its own legislation and sidestepping WTO agreements, essentially circumventing the global trade framework. The move has not only provoked retaliatory measures from other nations, but has also raised a broader question:
Is the WTO still capable of serving as the primary forum for resolving global trade disputes while President Trump remains in office?
Aluminum and steel tariffs will primarily affect countries that were previously exempt from similar measures introduced during Donald Trump’s first term. Therefore, nations traditionally considered U.S. allies, such as Argentina, Australia, the United Kingdom, Brazil, Canada, Japan, Mexico, South Korea, EU member states, and Ukraine, will be the hardest hit.
The exemptions, according to a White House report, have created loopholes that have been exploited by China and other countries with excess steel and aluminum production capacity.
However, the White House has yet to provide any evidence of these alleged abuses or propose solutions to deal with them.
Tariffs of this magnitude will adversely affect international trade and could destabilize the WTO.
In addition, affected countries are likely to retaliate and challenge the U.S. decision through the WTO.
Mexico, Canada, and China – nations affected by the new tariffs – have already displayed their initial reactions to these duties, as they went into effect on April 1, 2025.
Early in February 2025, Donald Trump imposed additional tariffs of 25% on imports from Canada and Mexico and 10% on imports from China. The decision was justified by concerns about illegal immigration, drug trafficking (particularly fentanyl), and national security.
However, China opposes these measures, arguing that they are based on unfounded and false accusations. Furthermore, Beijing contends that the additional 10% tariffs exceed the U.S.’s bound rates under WTO concessions and commitments. China claims that these measures violate WTO regulations and are also discriminatory and protectionist.
In response, China has initiated consultations under the WTO dispute settlement process.
Beijing alleges that the U.S. violates its WTO tariff commitments and the principle of most-favored-nation treatment (MFN) as outlined in the 1994 General Agreement on Tariffs and Trade (GATT).
Other countries affected by U.S. trade measures are likely to respond in a similar manner. Nevertheless, the question remains: can Washington be effectively influenced by WTO mechanisms?
In accordance with WTO dispute settlement procedures, the parties have 60 days to hold consultations and resolve the dispute. The affected countries may request the establishment of an arbitration panel if no compromise is reached within this period.
However, it is already clear that WTO rulings will remain largely in the legal domain without much enforcement power.
As an example, Beijing took retaliatory measures without waiting for an arbitration decision, likely to expedite negotiations and avoid unnecessary delays. The Chinese government imposed a 15% tariff on U.S. coal and liquefied natural gas, as well as a 10% tariff on crude oil, agricultural machinery, and large-engine vehicles.
In other words, Beijing formally engages with WTO mechanisms to resolve the trade conflict while simultaneously violating WTO agreements by imposing unilateral tariffs. This dual approach underscores the limitations of the WTO’s influence on resolving major trade disputes.
The other countries are also prepared to follow suit.
The Canadian government, for instance, announced tariffs on American goods of up to 25% in response to U.S. measures, while Mexico and the European Union have indicated similar measures.
Although these countries can join China’s WTO complaint or initiate their own cases, they have so far refrained, preferring instead to pursue bilateral negotiations.
Consequently, global trade remains uncertain. In the absence of rapid resolution, a full-scale trade war could emerge, disrupting global supply chains and weighing heavily on the global economy.
As of March 12, new U.S. tariffs on aluminum and steel will go into effect, leaving a limited period of time for potential negotiations.
In the event no agreement is reached, Ukrainian and European steel and aluminum producers may be forced to reduce exports to the U.S. as costs rise, making their products less competitive.
The result could be an oversupply in domestic markets – products that would have been exported may flood local markets, driving down prices and eroding producers’ profit margins.
Trade tensions are likely to escalate. While challenging U.S. measures at the WTO, the EU may impose tariffs of up to 50% on U.S. goods.
Steel and aluminum tariffs imposed by Washington could have far-ranging economic implications for European manufacturers as well as further strain transatlantic trade relations.
For Ukraine, this is a particularly unfavorable scenario.
In spite of the fact that Ukrainian steel only represents a small fraction of U.S. imports and poses no real competition to American producers, it represents a significant portion of Ukraine’s export income.
The Ukrainian Ministry of Economy reports that steel products made up 57.9% of Ukraine’s total exports to the United States, amounting to $503.3 million out of $869.1 million. Pig iron, pipes, bars, wire, and steel structures were the primary export items.
Ukraine is unlikely to retaliate against Washington or pursue a case through WTO dispute settlement due to its reliance on military and financial aid from Washington.
Additionally, U.S. tariffs on imports from China, Mexico, and Canada could have indirect repercussions on the European Union and Ukraine because global trade is interconnected. Supply chain disruptions, rising costs, and broader shifts in the dynamics of international trade may be some of the impacts.
As global markets adapt to countermeasures from other major economies, the EU – and Ukraine – will need to implement policy responses to mitigate the effects.
Ukraine is therefore facing additional economic challenges beyond the ongoing war. In the meantime, the country’s key trade partners may be too busy resolving their own legal disputes and economic concerns to offer significant support.
