Prime Minister Justin Trudeau placed a personal call to President Donald Trump Monday evening to let him know just how damaging going through with his threat to slap steep tariffs on aluminum and steel would be to Canadian workers. He also pointed out, according to a source, that the tough trade talk will likely have negative effects on the ongoing NAFTA negotiations.
Last Thursday, Donald Trump announced — without first addressing his administration — that the U.S. would be invoking a policy allowing them to put tariffs of 10 per cent on aluminum and 25 per cent on steel when there is a “threat to national security.” While business experts and American lawmakers speculate that the move was meant mostly to disadvantage China, it has enraged key U.S. allies like the European Union and Canada (the U.S.’s largest supplier of both materials).
Canadian Finance Minister Bill Morneau and Foreign Affairs Minister Chrysta Freeland both said last week that Canada was requesting an exemption to the tariffs, citing the interdependent nature of the North American aluminum market, but they were clear the government is willing to retaliate if need be. The White House quickly shot down any exemption talk, saying that allowing a few exemptions would inevitably lead to more. Donald Trump did, however, suggest that there is the potential for a Canadian exemption if the countries can agree on a “new and fair” NAFTA deal. The major problem here being that Trump has a different idea of a “fair” NAFTA than both Canada and Mexico.
Canada, in particular, has a trade deficit with the U.S. on both steel and aluminum, meaning we’re buying more than we’re selling. Despite this fact, the U.S. president frequently says that Canada is taking advantage of the U.S. and that the Americans are the ones with the deficit.
We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..
— Donald J. Trump (@realDonaldTrump) March 5, 2018
Actually, the trade surplus with Canada is north of $12 billion. https://t.co/bNWQFtWkaF
— Bill Weir (@BillWeirCNN) March 6, 2018
Huh. You’d almost expect a US President to have an economist or two on staff that he can consult to get the facts straight before tweeting or setting trade policy.
— Jason Pearce (@PolarisCapMgmt) March 6, 2018
In the days since the announcement, American lawmakers and business leaders have voiced resistance to the tariffs, arguing that they will not have the intended positive effects on American businesses. Republican House Speaker Paul Ryan says he fears other countries’ retaliation and the start of a trade war. Trump’s Chief Economic Adviser Gary Cohn has threatened to resign if the president goes through with the tariffs.
Across the pond, a trade war really is brewing. The EU announced this week that they are considering putting tariffs on quintessential American products like Harley Davidson motorcycles, Levis jeans and bourbon. Donald Trump replied with a counter threat: slapping tariffs on European cars.
And it looks like we have ourselves a trade war (although it’s all still hypothetical at the moment). Trump doesn’t seem to be worried though, because trade wars are apparently “easy to win.” Okay.
When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!
— Donald J. Trump (@realDonaldTrump) March 2, 2018
The seventh round of NAFTA talks between the three involved nations concluded in Mexico Monday. Before the tariff announcement, it was expected that the deal was on its way to a resolution, but this new threat has complicated the whole process.