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Report On Business Canada, Mexico to gain temporary exemption from U.S. tariffs on steel

President Donald Trump speaks during a news conference with Swedish Prime Minister Stefan Lofven in the East Room of the White House, Tuesday, March 6, 2018, in Washington.

Evan Vucci/AP

Canada and Mexico will be spared from President Donald Trump's tariffs on steel and aluminum while the three countries renegotiate NAFTA, with a permanent exemption if they agree to a deal that satisfies the President, the White House said on Wednesday.

The move allows Mr. Trump to avoid slamming the heavily integrated continental steel and aluminum industries while still using the threat of tariffs to crank up the pressure on his negotiating partners to agree to his protectionist demands at the bargaining table.

The President took to Twitter on Thursday morning to say he would hold a meeting at 3:30 p.m. at the White House over the planned tariffs of 25 per cent on steel and 10 per cent on aluminum, and that the United States must show flexibility toward its allies.

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"Looking forward to 3:30 P.M. meeting today at the White House. We have to protect & build our Steel and Aluminum Industries while at the same time showing great flexibility and cooperation toward those that are real friends and treat us fairly on both trade and the military," he said in the Twitter post.

Peter Navarro, a trade adviser to Mr. Trump, told Fox Business Wednesday evening: "The proclamation will have a clause that does not impose these tariffs immediately on Canada and Mexico. It's going to give us an opportunity…to negotiate a great deal for this country."

U.S. Trade Representative Robert Lighthizer said at the seventh round of NAFTA talks in Mexico City earlier this week that he wants a deal in the next four to six weeks.

Despite the apparent reprieve, Ottawa is leaving nothing to chance, preparing a plan to hit the United States with retaliatory duties on strategic products just in case it doesn't get an exemption for the looming global trade war.

Mr. Trump's press secretary, Sarah Sanders, told a White House press briefing Wednesday afternoon that other U.S. allies may also receive exemptions.

"There are potential carve-outs for Mexico and Canada based on national security, and possibly other countries as well," she said.

Mr. Trump surprised aides and industry alike last week when he announced the tariffs, citing the need to protect the U.S. steel and aluminum industries for "national security" reasons. For days, Canadian officials could not get a clear answer from the White House on whether the levies would apply to Canada.

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Earlier this week, Mr. Trump upped the ante further by threatening to include Canada and Mexico in the tariffs until they agreed to a renegotiated NAFTA.

Canada's retaliation for the tariffs would target swing states, said one senior official with knowledge of Ottawa's planning. Squeezing states such as Florida and Ohio that decide U.S. presidential elections would put pressure on Mr. Trump by hurting the places he must hold to win a second term.

Other people with knowledge of Canada's thinking said the government is reviewing a list of products it planned to target in a trade dispute over the labelling of meat in 2015, from wine to mattresses to pork.

Prime Minister Justin Trudeau said on Wednesday that, in a telephone call with Mr. Trump two days earlier, he told the President applying the tariffs to Canada "would be entirely unacceptable." He said he would not unveil Canada's retaliation until Mr. Trump laid out his cards.

"We know from experience that we need to wait and see what this President is actually going to do," he told reporters in Toronto.

Mark Warner, an international trade lawyer in Ontario and New York, said he expects the Trudeau government to hit back hard if Canada is not exempted, with retaliatory trade action and possibly lawsuits at the World Trade Organization and NAFTA tribunals.

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But Mr. Warner said Ottawa will have a hard time finding the right way to retaliate. Targeting U.S. steel and aluminum would hurt the Canadian economy, and going after specific products in key congressional districts would have little effect: The Republican majority in the U.S. Congress is already on Canada's side.

"It's really hard for them to retaliate without hurting the economy," he said. "They will be looking for something that isn't going to result in a real cost to Canadians, but is going to hurt the U.S." Mr. Warner pointed to former B.C. premier Christy Clark's plan last year to tax U.S. thermal coal passing through her province's ports as the sort of narrowly targeted measure Canada would probably adopt.

The head of Canada's largest private-sector union said a harsh response is the only way to get Mr. Trump to relent.

"They perceive us as weak and soft," Unifor president Jerry Dias told reporters in Ottawa after a meeting with officials in the Prime Minister's Office, including principal secretary Gerald Butts. "It's like the schoolyard bully who will push you around every day until you fight back."

Mr. Dias described the PMO officials as anxious.

"They are apprehensive, I think is fair to say. It's difficult to bargain an agreement when you have Donald Trump as the President. Every round another grenade is thrown," Mr. Dias said. "Since we started [renegotiating NAFTA] in August of 2017, they have come after softwood lumber, paper, aerospace, steel, aluminum. So that is who we are dealing with."

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Working in Canada's favour are the forces of free trade in the United States. Defence Secretary Jim Mattis, House of Representatives Speaker Paul Ryan and a host of business leaders have all called on the President to drop or scale back the tariffs.

But Mr. Trump also faces pressure from his nationalistic base to hold the line.

Dan DiMicco, a former steel executive and trade adviser to Mr. Trump, said on Wednesday that exempting Canada would provide a back door into the United States for Chinese steel products. This would defeat the purpose of the levies, which are largely aimed at Beijing.

"There are numerous parts that are made in China that get circumvented through Canada, as well as other products in the energy space," Mr. DiMicco told reporters during a conference call set up by Alliance for American Manufacturing, a pro-tariff group established by the United Steelworkers union and some industry players.

Rather than exempting entire countries, the administration should exempt only specific products that are not made in the United States but are necessary for the manufacturing sector, Mr. DiMicco said.

USW president Leo Gerard favours a Canadian exemption, but said Ottawa should work with the United States to block cheap overseas steel. "When Canada gets exempted, Canada needs to take a very, very strong position against circumvention and transformation to protect jobs of our members in both countries," he said.

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With reports from Steven Chase in Ottawa and Greg Keenan in Toronto

Lawrence Martin is a freelance writer

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