European Union joins global battle against Trump tariff onslaught

The EU on Friday launched its first counteroffensive against Washington's punishing steel and aluminium tariffs while the US began meetings in Canada with outraged finance ministers from its top trading partners.

Meanwhile, in Washington, Trump floated the possibility of scrapping the 24-year-old North American Free Trade Agreement in favour of separate bilateral deals with Canada and Mexico.

Brussels and Ottawa filed legal challenges at the World Trade Organization against Washington's decision. The EU, Canada and Mexico also threatened stiff retaliatory tariffs as they pushed back against President Donald Trump's multi-front trade offensive.

Canadian Prime Minister Justin Trudeau said Friday he was dumbfounded by Washington's national security basis for the tariffs, given that US and Canadian troops had fought together in World War II, Afghanistan and elsewhere.

"This is insulting to them," he told NBC News.

British Prime Minister Theresa May said she was "deeply disappointed" and reiterated a call for Britain and the EU to be "permanently exempted" from the "unjustified" metals tariffs.

As the Group of Seven ministerial meeting opened in Canada, US Treasury Secretary Steven Mnuchin faced stern reaction from his counterparts, who accused Trump of jeopardizing the world economy with steps that would prove job killers for all concerned.

Canada Finance Minister Bill Morneau said the G7 discussions would be "difficult."

"We are sending the message that these measures are not helpful," he told reporters.

And French Finance Minister Bruno Le Maire said Europe "will not negotiate with a gun to our heads."

They are joined at the meeting by officials from Britain, Germany, Italy and Japan.

"Unfortunately, we are being treated to a G6 + 1, with the United States squaring off against the rest and risking the economic destabilization of the planet," Le Maire said.

Behind closed doors, according to a European source who spoke on condition of anonymity, Mnuchin said little, choosing not to get into detail and deferring answers to next week's G7 summit when heads of state gather in Quebec, Canada.

Other delegations, however, hammered the points made earlier in public.

Le Maire argued that if Washington itself flouted the rules of international commerce, it would have a harder time convincing China to abide by them.

The US imposed the tariffs in March but gave Canada and the EU -- the biggest sources of foreign aluminium and steel for the US -- a grace period that ended at midnight Thursday.

Trump's decision drew furious responses from Canadian President Justin Trudeau, German Chancellor Angela Merkel and French President Emmanuel Macron.

The EU is preparing to slap tariffs on US products including bourbon, motorcycles and blue jeans worth up to 2.8 billion euros ($3.3 billion).

"If players in the world don't stick to the rulebook, the system might collapse. That is why we are challenging the US and China at the WTO," EU Trade Commissioner Cecilia Malmstrom said.

Macron told Trump in a telephone call that the tariffs were "illegal," and Merkel said the measure "risks touching off spirals of escalation that in the end hurt everyone."

Canada unveiled a package of counter-tariffs on US imports valued at Can$16.6 billion (US$12.8 billion).

And Mexico said it would impose retaliatory duties on a variety of US goods, including steel and a host of agricultural goods, including pork, apples and cheese.

The prospect of a global trade war has roiled financial markets this week even if they were back in positive territory on Friday due to upbeat US economic data. 

Berenberg Bank economist Holger Schmieding argued that the direct impact of a US-EU trade war on the world economy would actually be rather small. 

Nevertheless, "Trump's contempt for international rules can deal a significant blow to business confidence especially in trade-oriented nations," Schmieding said.

The WTO's former chief, Pascal Lamy, also said the damage would likely be limited in concrete terms.

"We have to keep things in proportion," he said on the French radio station France Info. He estimated that the economic impact of the tariffs would amount to "a very small part of trade flows as a whole."

But others have estimated the impact as up to a full point off global growth if the conflict expands and retaliation goes into effect.

The German carmakers' federation described the imposition of tariffs as "incomprehensible."

"In a connected, global economy, customs barriers don't benefit anyone, including the United States," the VDA federation said.

Germany's carmakers are especially braced for the latest threat from Trump, who earlier this month launched proceedings that could eventually slap 25 per cent tariffs on auto imports.

"I know he has a very particular problem with German cars," warned Malmstrom.