Trade Retaliation

Maple syrup from Vermont and perhaps California wine may be on Ottawa’s hit list in response to U.S. President Donald Trump’s proposed tariffs on steel and aluminum.

Lisa Rathke/The Associated Press

Canada will need to either bend or break international trade rules to take quick retaliatory action should the United States slap hefty tariffs on Canadian-made steel and aluminum, but experts say Ottawa has been forced into this position by an exceptionally protectionist White House.

Canadians should expect to pay more for iconic U.S.-produced goods if a trade war breaks out. Ottawa could slap import charges on goods from California wine to Vermont maple syrup – the sort of items that Canada has targeted in previous trade conflicts with Washington.

Canada has not released any lists of products – and the Trudeau government is staying mum on possible retaliation while it continues to seek an exemption from the Trump action. But experts suggest looking back at past trade spats with the United States – such as a 2014 dispute over meat labelling – to see what Canada has been prepared to hit.

Canada will be in good company in this trade fight, however, because more than 20 other countries or trading blocs will be taking similar countermeasures.

The European Union has already outlined a list of U.S. exports it would target after President Donald Trump said he will levy a tax of 25 per cent on imported steel and 10 per cent on aluminum.

U.S. President Donald Trump told a joint news conference that he still backs the idea of adding tariffs to steel and aluminum imports, linking them to a new NAFTA deal. Trump said he will straighten out trade in a “loving, loving” way.

Normally, Canada is supposed to seek retaliatory authority from the World Trade Organization to impose countermeasures on foreign countries but this process can take years. But, unlike past quarrels with the United States, Canada will be hard-pressed to act immediately – regardless of what the rules say.

“I don’t believe any countries affected by these tariffs will wait for WTO procedures to be completed before acting,” international trade lawyer Lawrence Herman said.

“Politics will drive this. Governments, including Canada, will be forced to respond immediately. That’s the dangerous precipice we’re facing, thanks to Mr. Trump.”

Colin Robertson, a former Canadian diplomat, writing in The Globe and Mail, says Canada and other countries threatened by the Trump tariffs should be drawing up a common list of U.S. exports that they could target with retaliatory action.

The EU has already warned it plans to target key Republican leaders with import taxes on items such as Kentucky bourbon – a product from the home state of Senate Majority Leader Mitch McConnell – as well as cranberries and dairy products from Wisconsin, home to House Speaker Paul Ryan.

Mr. Trump threw cold water on hopes for a Canadian exemption this week when he warned Canada would not be spared unless it agrees to U.S. demands for changes to the North American free-trade agreement – a series of protectionist U.S. requests that both Ottawa and Mexico City have characterized as unreasonable.

He said Tuesday that the tariffs will be applied in a “loving way.”

Mr. Ryan, the most powerful member of the U.S. House of Representatives, said the proposed tariffs are too broad and open the country to possible retaliation. Mr. Ryan named China, rather than Canada, as a problem.

The steel tariffs will be raised Wednesday at a meeting between auto industry leaders and officials in Prime Minister Justin Trudeau’s office, said Jerry Dias, president of Unifor, who will attend the meeting.

Auto industry executives sought the meeting to urge Mr. Trudeau to halt Canada’s participation in the Trans-Pacific Partnership trade agreement, which will eliminate Canada’s 6.1 per cent tariff on vehicles imported from Japan.

One U.S. trade expert estimates the annual cost to Canada of the steel and aluminum tariffs could be US$3.2-billion. Chad Bown, a trade adviser to former president Barack Obama, wrote in an article for the Peterson Insitute for International Economics that this amount would be roughly what Canada could justifiably expect to seek compensation for in retaliatory action against the United States.

Former Canadian government officials have said it’s very difficult to pick retaliatory targets. In 2005, when Canada was angry at a U.S. law that funnelled cash collected from tariffs on foreign goods to U.S. companies, Ottawa drew up a list that targeted the states where U.S. politicians voted for the legislation. In that case, Ottawa was forced to abandon some retaliatory targets – such as U.S. motorboats – because of push-back from Canadian industry. Its final list was narrowed down to a few items, such as tropical fish.

Laura Dawson, director of the Canada Institute at the Wilson Center in Washington, said Canada’s best bet to head off the tariffs may be to wait for the U.S. system of checks and balances to run its course, including a likely court challenge of steel tariffs by companies that buy steel.

“People are already talking about how court challenges will be launched, what would the courts be asked to adjudicate; would they be asked to adjudicate what constitutes a national security threat?” Ms. Dawson said.

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Trump Trade Threats

For Canada, Trump times are trying times. In spite of constant provocation, the team around Prime Minister Justin Trudeau’s team has successfully avoided making our policy differences personal. This is the right approach.

The latest ‘Trumplosion’ links the threatened new tariffs on steel and aluminum to renegotiating a “new and fair NAFTA agreement.” Delivered in one of the President’s now-trademark early morning tweets, it is straight out of Donald Trump’s playbook.

The Trumplosions are a distraction to the NAFTA negotiators. They remind us why we need a fair dispute-settlement chapter as insurance of secure access to our largest market.

Getting an exemption from the tariffs means redoubling our advocacy efforts in the United States. To our mantra about Canadian trade sustaining nine million American jobs, we now need to add that Canada is the biggest market for U.S. steel, taking half of U.S. steel exports. That Canada is the largest foreign supplier of both steel and aluminum to the U.S. only underlines our role as a trusted and reliable ally. And, as the President’s own 2018 Economic Report points out, the U.S. enjoys a trade surplus with Canada.

The multipronged Team Canada approach both in and beyond the Washington beltway is working. Ministers and premiers consistently reach out to their counterparts. Federal and provincial legislators work both sides of the aisle on Capitol Hill and in the statehouses. Business and labour engage customers and suppliers.

As a result, we have identified many more American allies than we thought. The dividend from all this activity is the significant number of U.S. legislators now making the case for a Canadian exemption.

The North American free-trade agreement, a leper in U.S. political circles for most of the last 24 years, is finding champions in the United States. The farm community, the auto industry and most business is now telling the Trump administration to “do no harm” to NAFTA.

But the problem, as Foreign Minister Chrystia Freeland recognizes, is that the Trump team approaches trade negotiations as a “zero sum” game. They are mercantilists and the growing U.S. trade deficit only strengthens their protectionist instincts.

The fate of the tariffs and NAFTA is ultimately an American debate.

The 140,000 jobs in the steel industry face continuing pressure not because of foreign competition but because of automation and robotics. The jobs are not coming back. The Trump administration owes these workers retraining and adjustment assistance.

There are 6.5 million jobs that depend on the steel imports. These are the jobs that Mr. Trump should be supporting. They will suffer if tariffs are imposed. It is “straight up stupid,” says Peterson Institute’s Adam Posen, “…you mess up your entire trading system.”

Mr. Trump is wrong on one thing. No one wins a trade war. Using national security as a protectionist cloak to impose tariffs risks unhinging the global trading order. It will backfire on the Trump administration.

Canadians are feeling the impact as the threat of tariffs disrupts our markets, our currency and potential investment. Bank of Canada Governor Stephen Poloz warns that the redirection of investment towards the U.S. will only increase. The Trump tax reforms will only accelerate this flight. Finance Minister Bill Morneau needs to rethink how to sustain Canada’s competitiveness.

Global overcapacity in steel production is testing the global trading system. Both the Organization for Economic Co-operation and Development (OECD) and International Monetary Fund (IMF) have identified the problem – Chinese overcapacity. A useful Canadian initiative would be to bring together China and the U.S., and our fellow U.S. steel suppliers – Brazil, E.U., Mexico, and South Korea – to see what we can work out.

With our fellow targets of the Trump tariffs, we should also draw up a common retaliatory list. By jointly and very publicly threatening to target products such as California wine, Canada and Mexico persuaded Congress to rescind the pernicious country-of-origin labelling requirements.

The tariff threat reminds Canadians that the Trump challenge – an impulsive, unpredictable president who thrives on chaos – requires constant vigilance. We will get through the latest Trumplosion because of our co-ordinated advocacy and careful diplomacy.

Even before being elected Prime Minister, Mr. Trudeau recognized the wisdom of Brian Mulroney’s axiom that the most important relationship for every Canadian prime minister is that with the U.S. president. Like it or not, Mr. Trudeau must continue to work diligently on his relationship with Mr. Trump, including the late-night telephone calls.

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