U.S. President Donald Trump has pushed relations between Canada and its largest trading partner to their tensest point in recent memory: American tariffs on steel and aluminum have sparked a trade war over more than $30-billion worth of goods. The Canadian lumber industry is coping with heavy U.S. duties on softwood, and the renegotiation of the North American free-trade agreement has proven fruitless.
And things could get far worse. Serious progress on NAFTA is likely to be delayed until at least the end of the year, said sources with knowledge of the confidential discussions, prolonging uncertainty for business. Mr. Trump’s willingness to hit metal imports, meanwhile, increases the risk he will follow through on threats to impose a 25-per-cent tariff on imports of cars and trucks, a move that would devastate Canada’s manufacturing sector.
Canada, which has previously taken a restrained approach to dealing with Mr. Trump, has shifted into fightback mode. Prime Minister Justin Trudeau is openly criticizing the President, and hoping to inflict maximum political pain on him through a series of targeted tariffs.
Mr. Trump singled out Canada for attack Friday, threatening the country’s forestry sector and falsely claiming that Ottawa – which, according to the United States’ own figures, has an $8.4-billion trade deficit with the United States – has a surplus.
“Canada has treated our Agricultural business and Farmers very poorly for a very long period of time. Highly restrictive on Trade! They must open their markets and take down their trade barriers!” the President tweeted. “They report a really high surplus on trade with us. Do Timber & Lumber in U.S.?”
It was Mr. Trump’s second shot at Canada in 12 hours; in a statement the night before, he warned Mr. Trudeau that, on NAFTA, “the United States will agree to a fair deal, or there will be no deal at all.” Mr. Trump also on Friday raised the prospect of separate trade deals with Canada and Mexico.
The President was particularly irked by Mr. Trudeau; Mr. Trump refrained from similarly firing back at Mexico or the European Union, which also announced levies on U.S. goods in retaliation for the steel and aluminum tariffs. The Prime Minister the previous day openly discussed his private conversations with Mr. Trump, referred to the U.S. administration as “unpredictable” and said it lacked “logic and common sense.”
A resolution on NAFTA now looks increasingly remote, with the Mexican election looming July 1 and U.S. midterms in November.
“It’s increasingly likely that the U.S. wants to wait until after November. I don’t think we’ll see a deal by the end of 2018,” said Daniel Ujczo, an Ohio-based trade lawyer with Dickinson Wright.
This means the pact would not be resolved before the U.S. Commerce Department is scheduled to report back on a plan to slap hefty levies on imported vehicles. And Mr. Trump’s actions on steel and aluminum have the Canadian auto sector worried that they will be next.
“Where he’s been consistent is trade protection,” said Flavio Volpe, president of the Automotive Parts Manufacturers’ Association of Canada and an adviser to the federal government on the NAFTA talks. “They don’t back off based on our logic. We can probably expect for them to move forward with their threats on everything they’ve told us they are going to threaten us with.”
An auto tariff would hit about $80-billion worth of Canadian exports – more than four times as much as exports of steel and aluminum. There are more than 120,000 vehicle-assembly and auto-parts jobs, compared with about 30,000 in the steel and aluminum sectors. Such a move would also damage the U.S. auto sector, eliminating 195,000 American jobs and sending the price of vehicles soaring, the Washington-based Peterson Institute for International Economics said in a study.
Canada would take the biggest hit among all countries if the Trump administration moves forward on auto tariffs, since about 85 per cent of the vehicles assembled in Canada are shipped to the U.S. market. The most damaging aspect of a tariff would be on investment in Canada.
“Canada would be challenged to attract new auto-related investment in a world of potential tariffs,” said Doug Porter, chief economist at Bank of Montreal. “I suspect even the vague threat could put a chill on new capital spending, which may be precisely what the administration hopes to achieve.”
After more than a year of trying to charm Mr. Trump, the Trudeau government has toughened its stance. A Canadian official said the U.S. goods hit with tariffs were picked to make a political impact: Orange juice was picked to hurt Florida, a swing state that voted for Mr. Trump, while pickles will hit Wisconsin, home of House Speaker Paul Ryan, and bourbon will slam Senate Majority Leader Mitch McConnell’s native Kentucky.
Ottawa’s retaliation could also hit Canadian companies that sell many of the affected U.S. goods. Canada is holding a quick 15-day consultation on the target list before hitting American goods July 1.
The Retail Council of Canada, in a statement on its website, said it’s not certain there are “acceptable substitutes” available on Canadian store shelves for American whiskies, orange juice or lawn mowers. The Retail Council’s vice-president of public affairs, Karl Littler, said he would not be surprised if retailers are trying to bring more American products across the Canada-U.S. border – at least non-perishable products – in the month before tariffs hit.
Eric Miller, a Washington-based consultant who works with companies doing international business, warned that people cannot be complacent about Mr. Trump’s threats.
“He is a guy who has a strong track record of following through on his promises. On every decision, there is a phenomenon of Trump self-denial: People say, ‘Oh, he won’t do it,’” said Mr. Miller, who pointed to the administration’s pledges to move the U.S. embassy to Jerusalem and pull out of international deals on climate and Iran’s nuclear program. “Then they wake up one day and find he’s done it.”