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Trump Might Exempt NATO Allies From Tariffs If They Hike Military Spending

U.S. Treasury Secretary Steve Mnuchin

U.S. allies might be asked to increase their financial commitments to NATO to avoid new U.S. tariffs on their exports of steel and aluminum to the United States, the U.S. Treasury secretary has said.

Treasury Secretary Steve Mnuchin told CNBC in an interview on March 9 that President Donald Trump will take national security into account in deciding which countries to exempt from the tariffs, and he noted that Trump wants to see NATO allies spend more on defense.

Mnuchin said Trump is specifically pushing to get NATO allies to spend the agreed goal of 2 percent of their gross domestic output on defense.

"We're spending 4 percent of GDP and many of our allies are spending 1 percent of GDP and not making commitments to go up to 2 percent, so the president is very clear.... If we're in NATO, he wants to make sure that NATO gets more money so that NATO can protect all of us and fulfill its goal," Mnuchin told CNBC.

Trump cited national security concerns as his reason for imposing a 25 percent tax on U.S. steel imports and a 10 percent tax on aluminum imports, saying that imports are "killing" the U.S. steel and aluminum industries and a nation that wants to defend itself must have a viable metals sector capable of supplying weapons manufacturers.

When he announced the tariffs on March 8, Trump indicated that European spending on NATO was on his mind. He singled out Germany for criticism both for its large trade surpluses with the United States and because it remains below the 2 percent NATO spending target.

"Many of the countries that treat us the worst on trade and the military are our allies," Trump said. "That's not fair."

Germany, which spends about 1 percent of economic output on defense, has committed to increase spending but not enough to bring it up to the 2 percent goal.

Trump exempted only Canada and Mexico from the tariffs, citing their "shared commitments" with the United States on national security. The White House said Trump will consider exempting other U.S. allies on a case-by-case basis.

Germany and other U.S. allies in Europe have said they will seek exemptions, given their longstanding alliance with the United States through NATO.

Mnuchin told CNBC that he has been speaking with his foreign counterparts and "my expectation is there may be some other countries that [Trump] considers in the next two weeks" for exemptions.

Countries seeking exemptions from the tariffs will have to make their case through U.S. Trade Representative Robert Lighthizer, but the president will make the ultimate decision, officials said.

Lighthizer was expected to be in Brussels this weekend for meetings with European officials.

The European Union has warned that if the United States does not exempt NATO members, they could retaliate with tariffs on U.S. exports, including steel and agricultural products such as peanut butter, cranberries, and orange juice.

Philip Levy, a former trade adviser in President George W. Bush's administration, told AP that the flaw in Trump basing his tariffs on national security was that military allies could ask to be excluded, undermining the president's stated purpose of protecting domestic steel and aluminum mill jobs.

If national security is the primary issue, analysts said the United States might end up exempting major economic competitors in Asia and Europe such as Germany and Japan from the tariffs -- leaving China and Russia as the main targets.

Russia is the third-largest exporter of aluminum to the United States and the fourth-largest exporter of steel. China is the second-largest aluminum exporter to the United States and is not among its top seven steel suppliers.

While China does not directly export much steel to the United States, it is the world's largest steel producer and has been widely blamed for causing a glut of steel on world markets.

With reporting by CNBC, AP, and AFP