Canada-US Tariff Fight Finally Ends

Almost a year after U.S. President Donald Trump imposed tariffs on Canadian steel and aluminum – and Prime Minister Justin Trudeau responded with countermeasures on a host of U.S. exports to Canada – the tense trade dispute ended abruptly today.

In a joint statement, the United States and Canada agreed to eliminate in the next two days all U.S. tariffs imposed under Section 232 on steel and aluminum, and that all tariffs imposed by Canada in retaliation would also be removed within two days.

The critical factor was U.S. negotiators stepping back from long-standing demands for a hard limit on Canadian steel and aluminum imports. From the beginning, Canada refused to accept a quota or other limits on exports of steel and aluminum to the United States. They have apparently been successful in persuading the U.S. of the merits of their argument.

Without direct reference to Chinese products, the two nations also agreed to prevent the importation of steel and aluminum at dumped prices, or transshipment of dumped product to the other country. The mechanism to prevent this, along with processes for monitoring trade between the two countries, will be established in consultations between the two.

They also agreed to cease all legal actions at the WTO.

The concession for the U.S. is an agreement that if steel or aluminum imports surge “meaningfully,” the importing country can impose duties. However, they are only in the individual product categories where the surge took place, and any retaliation by the exporting country would also be restricted to that product category. Duties in those categories are fixed at 10% for aluminum and 25% for steel.

The removal of the steel and aluminum tariffs represents a significant victory for Prime Minister Trudeau in the run-up to an election later this year. Both the U.S. tariffs and the tariffs imposed in retaliation were causing significant challenges for businesses and consumers on both sides of the border.

The removal of the tariffs also opens the pathway to a significant victory for President Trump. The Democrat-controlled House of Representatives is reluctant to give Trump a victory on the USMCA agreement and was holding up consideration until the Section 232 tariffs were removed. Today’s action helps begin the ratification of the new North American trade agreement, with passage in Canada now probable in advance of the federal election in October.

In addition, today’s action places Canada squarely on the American side of the U.S.-China trade dispute. How this will play into issues ranging from Huawei’s 5G network to canola sales to China,  remains to be seen.