U.S. President Donald Trump is threatening to hit Canada and Mexico with hefty tariffs on steel and aluminum until the two countries agree to a renegotiated NAFTA, rolling two looming trade battles into a single protectionist attack.
Canada and Mexico are pushing back, insisting the two fights must not be linked and keeping up a full-court press to stop Mr. Trump's tariffs. Prime Minister Justin Trudeau tried to warn Mr. Trump off tariffs, telling him in a telephone call on Monday that levies would make it harder to strike a deal.
Canada and Mexico have powerful allies in the United States, with senior Republican politicians demanding that he change his mind and mulling passing a law to stop him.
The three sides on Monday concluded the seventh round of North American free-trade agreement talks with a deal far off.
The President's point-man on the file, Robert Lighthizer, warned that "time is running very short" and that Mr. Trump's ultimatum was an "incentive" for the other countries to accept a deal.
Mr. Trump delivered his ultimatum on Twitter shortly after dawn Monday.
"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," the President tweeted.
Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo, however, said steel and aluminum tariffs would not be negotiated as part of NAFTA. Speaking with reporters at the Mexican economy ministry building at the end of the NAFTA round in Mexico City, Ms. Freeland said the two matters "are quite separate."
And she dismissed Mr. Trump's tweet.
"I was going to make some kind of joke about how all of us should take a break from social media," Ms. Freeland said. "But I think I'll refrain from that."
Ms. Freeland said Canada would retaliate if the United States imposed tariffs, but would not say what form that retaliation would take.
Mr. Trump surprised aides and industry alike by announcing the tariffs – 25 per cent on steel and 10 per cent on aluminum – last week. So far, the White House has not provided specific details on how they will work, and Mr. Trump's aides are fighting over whether to apply them to U.S. allies such as Canada.
Tying the tariffs to NAFTA cranks up the pressure in already tense negotiations. Canada is the largest supplier of both steel and aluminum to the United States, as well as the United States' largest export market for the metals.
Canada and Mexico have been fighting a series of protectionist U.S. demands at the NAFTA table. The Trump administration wants to slap a 50-per-cent U.S. content requirement on all vehicles made in Canada and Mexico, severely restrict Canadian and Mexican companies from bidding on U.S. government contracts and abolish or gut all of NAFTA's dispute-resolution mechanisms.
People with knowledge of the confidential negotiations said there had been little progress made in this round on these sticking points. None of the countries is budging on procurement, and the auto talks had to be suspended so the U.S. negotiator on the file could attend a consultation with industry in Washington. A separate auto negotiating session is expected to take place in Washington this month.
Negotiators instead pushed forward with less controversial matters, such as telecommunications, energy and food safety standards.
Mr. Lighthizer, the U.S. Trade Representative, warned that, with a Mexican presidential election on July 1 and congressional elections in November, the three countries must get a deal.
"I fear that the longer we proceed, the more political headwinds we will feel," he said at a joint appearance with Ms. Freeland and Mr. Guajardo, after trilateral meetings Monday.
At a subsequent scrum with reporters, Mr. Lighthizer praised Mr. Trump's ultimatum on tariffs: "I presented it as a positive thing. It is my view that it's an incentive to get a deal."
Canada is lobbying across the Trump administration for an exemption to the tariffs. Ms. Freeland spoke with Commerce Secretary Wilbur Ross, who will be in charge of administering the levy, on Friday. Mr. Trudeau pressed Mr. Trump personally. In summary of their call on Monday, the Prime Minister's Office said Mr. Trudeau expressed "serious concern" about the tariffs. "He emphasized that the introduction of tariffs would not be helpful to reaching a deal on NAFTA," it said.
The Trudeau government has numerous likely allies within Mr. Trump's own administration on its side: Those opposed to tariffs or believed to be open to Canada's request for an exemption include Defence Secretary James Mattis, National Security Adviser H.R. McMaster, Treasury Secretary Steve Mnuchin, economic adviser Gary Cohn and Jared Kushner, Mr. Trump's son-in-law. Economic nationalists Mr. Ross, Mr. Lighthizer and trade adviser Peter Navarro are the forces pushing Mr. Trump to go hard on tariffs.
Ottawa is arguing that Mr. Trump's ostensible reason for the tariffs – national security – should not apply to a close ally such as Canada.
Canada is getting an assist from the U.S. Congress. Speaker Paul Ryan has spoken directly with Mr. Trump to urge him to back off tariffs entirely, and the two top Republicans on the trade file in the House of Representatives – Kevin Brady and Dave Reichert – are also writing the President asking him to reconsider.
"We are extremely worried about the consequences of a trade war and are urging the White House not to advance with this plan," Mr. Ryan's office said in a statement. "The new tax reform law boosted the economy and we certainly don't want to jeopardize those gains."
Christopher Sands, director of the Center for Canadian Studies at Johns Hopkins University, said the deteriorating relationship between Canada and the United States has to do in part with how Ottawa has handled Mr. Trump's protectionist moves.
The Trump administration had expected Canada to be onside with its attempts at bringing auto jobs back from Mexico; instead, Canadian negotiators lectured the Americans on why their nationalistic demands were wrong. Then, Ottawa filed a massive case against U.S. trade law at the World Trade Organization, seeking to overturn decades of U.S. attempts at keeping out foreign imports.
"That shifted talk in the Trump administration about making Canada pay a price," Mr. Sands wrote in an e-mail, adding that the current climate is "very bad for Canada and likely to get worse if Canada does not change its approach."