The United States today paused tariffs on Canadian aluminum and agreed to withdraw current penalties – at least until after the November presidential election.
The move came right when Canada was asked to impose a wide range of retaliatory measures that would have hit some politically inconvenient targets for President Donald Trump as he sought re-election.
Ottawa planned to announce its retaliatory targets at 3 p.m. ET today. However, shortly after noon, the US abruptly announced it would cut its recently imposed import tax of 10 percent on Canadian aluminum – and re-examine the matter every month.
That doesn’t mean the conflict is over. With the announcement, the US unilaterally set monthly targets for the volume of aluminum imports it will accept from Canada without tariffs.
These US-set targets come into effect in September. The US announced that it would monitor export volumes six weeks after the end of each month – as regards the problem until mid-November, immediately after the November 3rd presidential election.
A Washington trade expert who worked in the Obama White House said the Trump administration appears to want to postpone a politically risky fight.
According to Canadian officials, the list of retaliatory tariffs Canada was about to impose on Tuesday would have hit the Ohio washing machine factory where Trump announced his levy on cross-border aluminum.
“I think the reprisal threat posed by the Canadian government was credible,” said Chad Bown, Obama White House trade officer and senior fellow at the Peterson Institute for International Economics.
“”[It had] the potential to hurt some of President Trump’s voters. “
The federal government welcomed the US decision – but warned against retaliatory measures if necessary.
In response to the announcement by the U.S. sales representative’s office that it would lift the 10 percent levy on Canadian aluminum products, Deputy Prime Minister and Treasury Secretary Chrystia Freeland said the move signals that common sense has prevailed.
“The last thing Canadians and Americans need right now in the midst of this pandemic is a trade war,” she said at a press conference in Ottawa today.
The USTR announcement came just hours before Canada was due to announce retaliation.
Watch: Freeland is responding to U.S. tariff changes
A USTR statement said that following consultations with the Canadian government, the US has determined that trade is expected to “normalize” in the last four months of the year after the “swings” started earlier in the year.
“Accordingly, the United States will change the terms of the 10 percent tariff introduced in August on imports of raw Canadian unalloyed aluminum,” the statement said.
The USTR statement lists the shipment volumes for each of these four months, which are monitored to ensure they are not exceeded. In this case, the US expects imports to decrease by a corresponding amount in the following month.
Tariffs could be reintroduced: USTR
The tariffs could be reintroduced if the shipping volume exceeds 105 percent of the stated volume, according to the USTR.
“The United States will consult with the Canadian government later this year to review the state of aluminum trade, taking into account trading patterns over the four-month period and expected market conditions in 2021,” the USTR said in a statement.
This is where the potential for future conflicts lies.
With Canada refusing to agree to export quotas on metals, the US has unilaterally announced its own import restrictions on a popular type of aluminum used as the base material for finished products.
The limit set by Washington varies between 70,000 and 83,000 tons of unalloyed, raw aluminum per month. Industry-released statistics collected by the US Census Bureau suggest that this could be a source of future tension.
CLOCK | US cuts Canadian aluminum tariffs:
Canada consistently exceeded this export volume to the USA in the past year, and has done so frequently in recent years.
However, some Canadian officials believe the volume will naturally decline as bizarre economic conditions begin to stabilize recently.
Production of this material rose to unusually high levels during the economic crash that was triggered by the pandemic. In view of the lower demand for new cars and other products – and in view of the difficulty of suddenly switching off an aluminum smelter – manufacturers have repeatedly cranked out an unusually large number of unfinished products.
Freeland stressed that Tuesday’s development was not a negotiated agreement with the US and that the US government was acting “unilaterally”. Canada does not accept the imposition of quotas, she said.
Freeland said Canada is suspending retaliation for the time being.
“If tariffs are reintroduced, Canada will reciprocate with perfectly reciprocal dollar-for-dollar tariffs,” she said.
Minister for Small Business, Export Promotion and International Trade, Mary Ng, said Canada had given nothing in return for the USTR’s decision. She recognized a cooperative approach with federal and state governments as well as representatives of the industry for the positive development today.
“It is a testament to Team Canada’s approach as we have all worked tirelessly to get rid of these unjustified tariffs on Canadian aluminum,” she said.
The group calls on the US to remove the threat of tariffs
The Canadian Chamber of Commerce also welcomed today’s news but noted that the USTR “has not unconditionally raised tariffs and is trying to restrict market-oriented trade flows”.
“We urge the United States to completely and unconditionally eliminate the threat of tariffs being reintroduced in the future,” said Mark Agnew, senior director of international trade for the organization.
“This will offer Canadian and American companies vital reassurance during this time of great economic uncertainty. At a time when our economies are grappling with the economic impact of COVID-19, these tariffs have only exacerbated disruptions in North American supply chains.”
The USTR announcement comes after a period of intense tradebrinkmanship between the two trading partners. Prime Minister Justin Trudeau said earlier today that Canada will announce retaliatory measures against “unjust” American aluminum tariffs this afternoon.
In a statement before day two of a cabinet retreat in Ottawa, Trudeau said the government would act to protect Canada’s aluminum industry.
“I want to emphasize that we will take action to counter the unjust US tariffs on Canadian aluminum,” he said.
“As I have said many times before, we will always be there to defend Canadian workers. We will defend our aluminum sector.”
Counter duties of $ 3.6 billion planned
The government announced in the summer that Canada would impose countermeasures totaling US $ 3.6 billion if the US did not drop its last round of aluminum tariffs.
Jagmeet Singh, chairman of the NDP, said the tariffs and counter-tariffs would harm workers on both sides of the border because the aluminum sector is so interconnected. He said the government should have done more to convince Americans not to impose the duties at all.
“I think we knew the President of the United States had done something like this in the past. We should have taken steps beforehand and been proactive to prevent this from happening,” he said.
“Now that we are at it, I support the retaliation, but I want to make sure that the money that is being made through the retaliation is actually being used to support the industry, and specifically to support the workers.”
Myron Brilliant, executive vice president of the US Chamber of Commerce, made a statement welcoming the USTR’s decision.
“What American manufacturers need now is the assurance that these tariffs won’t reappear. With these threats aside once and for all, American job makers can focus on economic recovery,” the statement said.
Dollar to dollar countermeasures
Trump announced he would introduce the tariffs during a campaign speech at a Whirlpool factory in Ohio, citing national security concerns.
At the time, Freeland was quick to respond by stating that Canada “intends to take quick dollar-to-dollar countermeasures”.
“Canadian aluminum does not undermine US national security. Canadian aluminum strengthens US national security and has done so for decades through unprecedented cooperation between our two countries,” she said in August.
Ontario Prime Minister Doug Ford also publicly commented on Trump’s “unacceptable” decision, saying it could jeopardize the historically strong trade ties between the two countries.
He urged Ontario residents “to meet them where it hurts,” noting that the province’s consumer base is an economic powerhouse.