Canada and the US appear to be on the brink of a trade war, coming off a fiery G7 conference. A simple look at Trump’s Twitter should reveal his thought process on this. To quote just one tweet: “Fair Trade is now to be called Fool Trade if it is not Reciprocal. According to a Canada release, they make almost 100 Billion Dollars in Trade with US (guess they were bragging and got caught!). Minimum is 17B. Tax Dairy from us at 270%. Then Justin acts hurt when called out!”
This all started when Trump imposed tariffs on steel imports worth 25% and aluminum tariffs worth 10% to the United States, impacting Canadian manufacturers of steel, in addition to those in Mexico and the European Union. To be clear, these tariffs were strictly for national security reasons and not in response to Canadian dairy supply management rules.
Canada responded to this by announcing its own set of tariffs on US products, set to come in on July 1. Trump has responded by threatening to impose a 25% tariff on imported autos, impacting the Ontario industrial heartland.
There is a significant bloc of Republicans who are against this. For example, Senator Bob Corker is tabling legislation to give Congress the ability to override tariffs imposed by a president for national security reasons. Corker is quoted as saying, “It’s an abuse of presidential authority to use the 232”, referring to the use of an amendment allowing the President to enforce tariffs for national security reasons. Senator John McCain is quoted as saying, “Americans stand with you, even if our president doesn’t.” Whether this sentiment translates into actual legislation, as the Republicans do not want to anger the President, remains to be seen. However, not doing so may hurt their economy and lead to a thrashing in the midterms.
Trump’s thought process on the tariff situation is plain and simple. He is seeking to use the tariffs as leverage in NAFTA negotiations with Canada and Mexico. The NAFTA talks have reached a standstill over disputes on auto content rules and a sunset clause. By Trump’s logic, any country that receives more from the US than it spends in the US is cheating the US on trade. While the US may have a trade deficit with Canada in terms of goods, the US actually has a trade surplus with Canada when services are taken into account. In addition, there are many supply lines that rely on goods crossing between Canada and the US that are being disrupted by this. Only time will show the long-term repercussions on Canadian-American relations.
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