Canada's Counter-Tariffs May Prove Less Punishing Than Anticipated
No-Bull Guidance on Tariffs: Unleashing the Unfiltered Truth About Trump's Trade Wars
Let's get real - customs duties, including counter-duties, are a self-inflicted thumping, folks. Right now, Trump's trade war might be steering towards a new battlefield.
It wasn't long before Trump thrust Canada's fresh prime minister, Mark Carney, under the media spotlight. After raising U.S. tariffs on steel and aluminum imports from 25% to 50%, everyone was eager to see Canada's retaliation.
With opposition parties, affected businesses, and workers' unions advocating for swift, strong counter-duties, Ontario's premier and self-proclaimed "Captain Canada," Doug Ford, summed up the situation this way: "Stand up for Canada and its jobs, or get scrunched."
Canadians have reason to take these new American tariffs personally. Approximately 85% of Canadian steel production is destined for the U.S., and a staggering 96% of Quebec's aluminum production.
However, experts contend that Trump might not have primarily targeted Canada with his decision. He had recently faced backlash from an American court over so-called "reciprocal tariffs" and duties on Canada, Mexico, and China to address drug trafficking and illegal immigration. Raising tariffs on steel and aluminum seemed like a simple, swift way for Trump to reaffirm his authority.
A Costly error
These new tariffs, along with the barrage of others around the globe, are a bad bet, experts warn. If the goal is to obstruct unfairly subsidized Chinese products, why clobber everyone else? If the aim is to bring production back to the U.S., Americans must exercise patience. Constructing a new steel mill is pricey, requires a substantial amount of energy, and takes years to complete.
During this waiting period, the new tariffs will be borne by those who purchase foreign steel and aluminum – in other words, American companies and consumers. It's estimated that for each job in the U.S. steel sector, 80 jobs in other industries, such as automotive or construction, will pick up the bill. The initial tariffs on steel and aluminum imposed by Trump during his prior term led to increased profits and a few jobs in the two sectors, but also price hikes, a decline in exports, and economic losses for everyone else.
Counter-duties operate in much the same way. That's why Canadian governments have strived to maximize their impact on the U.S. and minimize harm to Canada. This has been done during the drafting of the list of targeted products and later, with companies able to request exemptions if obtaining the products elsewhere would have "serious adverse effects on the Canadian economy."
It's Complicated
This has led to a significant reduction in the total value of Canadian counter-duties that will actually apply to American imports from $96 billion to $40 billion, as estimated this week by economist Tony Stillo of Oxford Economics firm.
The majority of the $36 billion in retaliatory duties announced in response to Trump's automotive tariffs would be suspended for 12 months because the targeted products comply with the rules of the Canada-United States-Mexico Agreement (CUSMA). One-third of the $60 billion in countermeasures in other sectors would also benefit from various forms of exemption for six months, giving Canadian companies time to find alternatives to their US inputs.
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In total, Ottawa's retaliatory duties have generated only $1.7 billion in revenue since March, according to the government.
This significant reduction in the measures actually applied by Canada against the US is indicative of the extraordinary level of economic integration between the two countries.
Canada is not the only one applying less severe duties than promised. Despite Trump's assertions, almost 90% of Canadian exports entered the US market in April without being subject to additional taxes, according to a RBC analysis.
This is partly due to the fact that many exporters have learned the importance of filling out the formalities attesting that their productions comply with CUSMA rules and have consequently been exempted from the general 25% duties. The proportion of exports deemed compliant with CUSMA by US authorities has thus increased from 38% last year to 50% in March and could eventually reach 94%, according to RBC.
A New Kind of War
If new countermeasures are not announced, it's not just to avoid hurting the Canadian economy, the Carney government explained this week. It's also because negotiations with Washington are intense, and they don't want to compromise the chances of an agreement that could happen before the next G7 summit, which is about ten days away.
Canada is not the only one saying it is in "negotiation sprint" with Trump. In April, Trump claimed, without laughing, that he aimed to conclude agreements with 90 countries in 90 days.
Discussions are progressing at a good pace between Canada and the US on the "security" of US supplies of Canadian oil, natural gas, critical minerals, uranium, and electricity, Alberta Premier Danielle Smith reported on Wednesday. All that remains is to make Trump understand that, contrary to what he claims, the two countries also need each other in other sectors of the economy, she said.
The White House may be realizing that the most important thing is not the access that its companies have in other markets or that it grants to foreign companies in its own market, but access to the resources, technologies, and know-how of other economies.
We see this, for example, in Washington's move to prevent the export of its aircraft engines to China, to which Beijing responds with restrictions on the export of critical minerals that go into the manufacture of those same engines, as reported by the New York Times on Tuesday. This "value chain war" has already begun in digital technologies and renewable energy and could spread to several other sectors, such as pharmaceuticals and transportation.
If this transformation of trade disputes were to materialize, Canada should not, to put pressure on the White House, dwell on which imported U.S. goods deserve further duties, but rather consider which products or services it should stop selling to Americans.
- The new tariffs on steel and aluminum imports, implemented by Trump, have led to a complex game of counter-duties in the arena of international trade, including in sectors like transport, where Canadian companies may need to find alternative sources to US inputs.
- In the midst of this strategy-shaping politics, Canada's governing parties and affected businesses are advocating for careful consideration in imposing counter-duties, understanding that the cost of such measures can be borne not only by the targeted American companies but also by the general public, potentially creating a ripple effect in various industries, such as transport.
