‘Déjà vu in the worst possible way’: Trump’s tariffs on Canada will backfire by hurting U.S. economy more, experts say

The aluminum tariff war re-ignited between Canada and the U.S. is purely a political move by U.S. President Donald Trump as the country prepares for an election in three months, trade experts say, adding that this move will strongly affect the U.S. 

In the past 24-hours, Trump re-imposed tariffs of 10 per cent on certain aluminum products, ending steady waters for U.S-Canada trade relations. Similar tariffs were placed in 2018, but were removed with the understanding that there would not be a huge surge in imports of these products. 

Jeff Schott, a senior fellow at Peterson Institute for International Economics, said in an interview that re-imposing the tariffs was done after noticing that growth in imports of basic aluminum products has gone up substantially. 

“[U.S. Trade Representative Robert Lighthizer] has ruled that for national security reasons this justifies the imposition of the tariff,” he said. “There is no national security justification for doing this. It’s very hard to make a case that there is a national security threat from the increase in aluminum imports.”

Schott said it was “dubious” for the U.S. government to do this, but because of Section 232 of the International Emergency Economic Powers Act of 1977, Trump is allowed to make the claim. 

“This is the way the Trump administration does business and it’s blatantly tied to the political campaign and part of a series of response or actions that President Trump has been taking in the last week or two to shore up the main themes that he is going to protect national security,” Schott said. 

Mark Agnew, senior director of international policy at the Canadian Chamber of Commerce, said in an interview that this entire situation was a “feeling of Déjà vu in the worst possible way.”

He added that imposing it on an account of a national security threat didn’t make sense in 2018 and doesn’t make sense now. 

“It’s even worse now because you’re compounding a really bad tariff with the economic uncertainty of COVID-19,” he said. 

“It’s going to be 10 per cent more expensive when you have this tariff. So if you’re a company that’s using these as an input, it means that your input costs are going up by 10 per cent. That means companies will either just take the hit to their bottom line, which is already being squeezed by COVID, or some companies are going to want to renegotiate with their suppliers.”

On Friday, Deputy Prime Minister Chrystia Freeland said the government will spend the next month in consultations with Canadians about which metal products it will target with retaliatory tariffs. She said during a press conference that the government intends to impose $3.6 billion in punitive counter-measures. 

“Canada will respond swiftly and strongly,” she said, adding it was ironic the U.S. was placing this tariff when it will harm the American economy more. 

 0:00 0:36   Freeland says retaliatory tariffs looking to have the ‘strongest possible impact’ on the U.S.

The U.S. imports about 60 per cent of aluminum from Canada, said Jean Simard, president of the Aluminum Association of Canada in an interview.

According to Global Affairs Canada, combined trade of aluminum between Canada and the U.S. totals to $14.5 billion annually. Simard said that in 2017 the U.S. was paying about $3 billion, and with added tariffs, the U.S. is likely going to be paying $300 million more.

“Tariffs always end up being paid by the domestic consumer of the country,” he said. “We will be impacted because of the layer of additional uncertainty that adds to an already very fragile business environment caused by COVID-19.”

Simard added that now was not the time to place tariffs, but wasn’t surprised Trump made the move. 

Mark Warner, a Canadian and American trade lawyer at MAAW Law, said in an interview that Trump is “embattled, to put it mildly,” and he needs to keep trying to find a hook to hold on to his position. 

“My guess, and it can be debated, is that he’s roughly tied in the margin of error in a lot of key battleground states, the Rust Belt states, Ohio, Wisconsin, Pennsylvania, and he’s trying to find a wedge and trade is something he’s used before,” he said. 

Warner added that Trump has never had to answer to a board of directors before and the only area where the U.S. has “given carte blanche” is when a U.S. president invokes national security concerns. 

“[Congress] doesn’t second guess a national security decision,” he said. 

But all of this could be thrown out the window in the next 30 days when Trump gets more involved in his presidential campaign, Warner said. 

“He likes to have the last word and that’s what we’ve seen for the last four years. Will this be the exception where he says on September 16 okay Justin Trudeau, I can’t allow you to retaliate and go unanswered, or will he be too busy in the campaign?

“I’m just saying everything we’ve seen in this guy for four years is he doesn’t like to let someone else have the last word,” Warner said. 

Source: Yahoo Finance