A deal was reached on Friday to end the metal tariff battle between Canada and the U.S. Steel and aluminum imports from Canada will no longer be taxed, but that doesn’t mean all the problems are over.
The new NAFTA still has to be ratified and the protectionist administration in the U.S. is still causing anxiety in Canada.
Here’s what you need to know about the tariffs deal and what happens next.
When do the tariffs end?
The American tariffs on Canadian steel and aluminum — 25 per cent and 10 per cent, respectively — disappeared as of today. Finance Minister Bill Morneau announced on Monday that Canada lifted its retaliatory countermeasures against the U.S., according to a news release from the Department of Finance Canada.
When the deal was announced on Friday, the government said the taxes would stop in two days time.
However, that doesn’t mean that Canadian metal is in the clear yet. The U.S. reserved the right to reimpose duties if imports “surge” beyond historical levels.
What exactly does that mean? We’re not sure yet.
Foreign Affairs Minister Chrystia Freeland told CBC Radio’s The House that it was very intentional language from the Americans, but she didn’t clearly define what a surge would be.
Canada buys more steel from the U.S. than any other country. Half of American steel finds its way to Canada, and in 2017 more than $18 billion CAD in steel was traded between the two countries, according to Global Affairs.
Trade in aluminum between Canada and the U.S. is around $15 billion a year, and 84 per cent of Canada’s aluminum is exported to the Americans.
Part of the deal included implementing a monitoring system that would signal if trade is getting close to a “surge” level.
What the Americans are worried about is cheap Chinese steel coming into their market via Canada.
Freeland said if the tariffs come back, they only would target the specific offending material — meaning steel won’t be affected by aluminum imports, and vice-versa.
How did we get here?
The tariffs were in place for almost a year. The new NAFTA was signed in the fall, after intense negotiations, and there had been hopes that the tariffs might come off then as a sign of good faith from the Americans.
That didn’t happen and it didn’t go over well with Canadian officials. Once the deal was done, all attention turned to kicking those duties.
Canada challenged the U.S. (and will now drop the case) under World Trade Organization rules, calling the imposition of tariffs illegal. The U.S. had introduced them under the guise of Section 232 of the little-used Trade Expansion Act, which allows a president to enforce levies for national security reasons.
The negotiations continued, with little tangible progress — until the last few weeks.
Prime Minister Justin Trudeau had a series of phone calls with President Donald Trump about the situation. Freeland had meetings in Washington. And a well-timed opinion article from Republican Sen. Chuck Grassley — who vowed Congress would not pass the new NAFTA legislation until the tariffs were lifted — helped tip the scales in Canada’s favour.
What products are no longer affected?
When the U.S. announced it would be slapping tariffs on Canada, the federal government hit back with $16.6 billion in dollar-for-dollar reciprocal duties.
But because we don’t import the exact same amount of steel and aluminum from the U.S., the list got more creative — including chocolate, toilet paper, hair gel, boats, and other seemingly random products to match the dollar amount.
A closer look revealed the government was aiming at key Republican targets. Orange juice from the swing state of Florida, Kentucky whiskey from Sen. Mitch McConnell’s home state, and dairy products from Rep. Paul Ryan’s Wisconsin.
In the first two months of the taxes, Canada had taken in almost $300 million.
Now that relative peace has been established, those Canadian tariffs dissolve too.
What happens next?
One hurdle is out of the way, but that doesn’t mean it’s smooth sailing for the new NAFTA.
Canada still has to ratify the agreement, and send implementation legislation through the House of Commons.
While the federal cabinet ratifies trade treaties, it does so only after it has passed in Parliament, readying Canadian laws and regulations to comply with the new terms.
Freeland says it’s “full steam ahead” on that endeavour and called on the other parties to co-operate.
So far, they’re not quite on board.
The NDP’s trade critic Tracey Ramsey says it’s foolish to ram the deal through Parliament before we see what changes the Democrats in the House of Representatives make.
The U.S. ratification will be an uphill battle, as questions linger about how to effectively implement labour and environmental regulations set out in the deal.
Ramsey said that’s part of the reason why she doesn’t think NAFTA will see the light of day before October’s election.
And getting assent from the Conservatives, who aren’t onside with much the Liberals have done, will be a tough sell too.
Leader Andrew Scheer said having the tariffs lifted is a good thing for workers, but there’s still a lot of uncertainty.
And then there’s the bailout the government gave to steel and aluminum workers.
In March, the Liberals announced $100 million in funding for small and medium-sized manufacturers. Trudeau says that will stay in place for now, but it’s unclear when the help will end.
The safeguards put in place to prevent dumping of foreign steel will also stay as part of a “continued commitment,” and part of the tariff deal includes keeping an eye out for any unwanted surges of global product in North America.
“We have to make sure we protect our market,” Finance Minister Bill Morneau said.
….I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN
— Donald J. Trump (@realDonaldTrump) December 4, 2018
Another unanswered question is the future of dealing with an ultra-protectionist administration in the U.S.
Canada is on relatively stable ground now in regards to metal tariffs, and it has also secured a near-exemption on auto tariffs.
But the foreign affairs minister isn’t relaxing just yet.
Freeland said it would be naive to feel secure and that she was still concerned about what could come next from Donald Trump.