If President Donald Trump slaps a 10% tariff back on products imported from Canada like steel and aluminum, the move could hurt Americans instead.
Last week, U.S. Trade Representative Robert Lighthizer sparked rumors of a possible return to tariffs on Canadian aluminum by telling the Senate Finance Committee that a recent spike in imports from north of the border is a “genuine concern.” Those aware of Canada’s long running battle with the U.S. over the softwood lumber industry have seen this movie before.
As with softwood, the U.S. needs imported aluminum to meet its domestic demand. Americans consume up to six million tons of aluminum every year. But the country’s struggling domestic industry produces only 800,000. As a result, some players in the industry are leveraging their political influence to gain a price advantage over foreign competition, especially with an election on the horizon and the Trump administration mentality that protecting jobs equals winning votes.
In the new North American trade agreement that takes effect July 1, the Trump administration specifically negotiated requirements for the automotive industry to use more North American steel and aluminum. Canada’s product is geographically convenient and produced in cost-efficient mills, so in theory, it should be a growth opportunity for both sides. Yet when the previous round of American steel and aluminum tariffs ended, the joint statement issued by Canada and the U.S. laid out conditions under which tariffs could “snap back,” or be re-applied.
“In the event that imports of aluminum or steel products surge meaningfully beyond historic volumes of trade over a period of time,” the statement said (without defining a “meaningful surge” or what that time comparison should be), “with consideration of market share” (again, this ideal share is undefined) “the importing country may request consultations with the exporting country.”
“After such consultations, the importing party may impose duties of 25% for steel and 10% for aluminum in respect to the individual product(s) where the surge took place,” the 2019 statement continued. “If the importing party takes such action, the exporting country agrees to retaliate only in the affected sector.”
Put simply, all the U.S. lobby needed to reignite the debate was evidence of such a “surge,” and they saw what they were looking for in the volatile conditions of the COVID-19-wracked economy. Canada rejects the idea of voluntarily restricting production to satisfy American demands. This unwillingness to go along with voluntary export quotas is what sparked the latest tariff threats: higher prices discourage imports by another means. According to the Aluminum Association of Canada, the total volume of aluminum coming out of Canada hasn’t changed much—only the type of product has changed, for reasons that are entirely short-term and related to the pandemic.
“It’s purely market dynamics,” Jean Simard, president and chief executive of the association, told CBC News this week, adding that the same substitutions happened during the last financial crisis in 2008-09.
“Everybody is doing this. It’s the only way to keep plants operating and keep the link with the market. The problem is caused directly and certainly by COVID. It’s a matter of months for the situation to correct itself.”