This past week, President Trump announced (tweet, tweet) that he plans to impose tariffs of 25 percent on imported steel and 10 percent on aluminum. Besides affecting trade with Europe and China, the proposed tariffs would particularly affect Canada and Mexico. Canada is the biggest supplier of steel and aluminum to the U.S., and Mexico is the fourth largest source of steel. Both countries have asked to be excluded, and both indicated that they would strike back if Trump includes them in the stiff duties. Trump’s basis for imposing such tariffs is on the grounds of national security, arguing that the U.S. cannot rely on foreign imports for steel and aluminum. This rationale in and of itself is totally baseless given existing security arrangements among the three countries and the nature of their integrated economies.
Not only this, Trump’s announcement has thrown a wrench into current negotiations among the three countries respecting the North American Free Trade Agreement (NAFTA). The Canadian and Mexican teams are absolutely furious, and rightly so. The steel and aluminum tariff announcement may have just killed off any hopes of advancing on major sticking points at the NAFTA talks, including setting new rules for auto content in the region. On top of which, Trump has implied that the two countries would not be excluded from the imposition of tariffs unless a new NAFTA deal is made which would benefit the U.S. Some negotiating tactic!
The problem for the U.S. is that the Americans export as much steel and aluminum to Canada as they import from Canadian manufacturers. The North American market has nicely evolved over decades to allow both countries to develop more specialized sources of steel manufacturing, benefiting both countries. This is why U.S. businesses and labour unions (e.g. United Steelworkers or USW) are arguing for an exemption from the planned tariffs. The USW, representing steel workers on both sides of the border, even went on record with the following:
“Canada is not the problem. The United States and Canada have integrated manufacturing markets and our union represents trade-impacted workers in both nations. In addition, the defense and intelligence relationship between the countries is unique and integral to our security. Any solution must exempt Canadian production. At the same time, Canada must commit to robust enforcement and enhance its cooperation to address global overcapacity in steel and aluminum. …”
Once again, the Trump administration has demonstrated its complete lack of good economic policy, all in the name of political opportunism. We now have an integrated North American market, exemplified by the fact that Canada is the biggest trade partner with the U.S. The major problem is that there appears to be a complete lack of understanding as to how multi-lateral trade arrangements work in today’s global markets. Unfortunately, if Trump’s approach continues, then the NAFTA talks will falter much to the detriment of all three countries and to their respective economies. Consumers will suffer as will workers. Hopefully, growing American domestic opposition to Trump’s protectionist trade policies will prevail. One can only hope!
FROLITICKS 