Possible Trade War: U.S. and Canada
On June 1, 2018, the U.S. committed to a 25% tariff on imports of steel and 10% tariff on aluminum, on the European Union, Canada and Mexico. The tariffs have triggered retaliatory tariffs on U.S. goods and heightened the chance of a trade war.
The U.S. steel industry will initially benefit from the tariff increase through decreased international competition, driving up the price of U.S. steel and therefore the profits. These profits can be reinvested into the steel industry by improving their technologies and potentially providing more job opportunities.
A potential downfall to the tariff increase is retaliatory measures from U.S. trade partners, as is the case with Canada. Canada has announced $16.6 billion in retaliatory tariffs. The Canadian tariffs will go into effect July 1, 2018, and cover a broad range of commodities. Some, mainly unfinished iron and steel products will be hit with a 25% tariff, while others including many consumer products will be hit with a 10% duty.
If history repeats itself, trade policy experts warn tariff increases could cause future harm. An example of this was in 2002, when the U.S. enacted a tariff of 8% to 30% on international steel. The increased tariffs set off a chain reaction with the European Union responding with tariffs of its own and a number of countries disputed the tariffs at the World Trade Organization. The WTO ruled the U.S. violated the international trade agreements, and opened the door for sanctions and retaliation. Retaliation by the EU cost many Americans their jobs, and in late 2003 the U.S. Government reversed the sanctions.
The tariffs could cost the Canadian economy over $3 billion a year. According to the Canadian Steel Producers Association, Canada is the largest supplier of steel and aluminum to the U.S. Approximately 90% of Canada's steel is exported to the U.S. The price of steel and aluminum is going to go up as a result of these tariffs and jobs will be lost in Canada. Steel production employs around 22,000 people in Canada concentrated mainly in Ontario. Canada exports around 84% of its aluminum to the U.S., which represents around 8,300 jobs in the aluminum sector with the majority being in Quebec.
Canadian consumers can expect to pay more for products imported from the U.S. that are largely made of steel and aluminum which could apply to anything from cars, refrigerators, canned sodas and beer.
China, and the European Union have also responded negatively to the U.S. tariff increases. Brazil contributes 13%, followed by South Korea at 10%, and Mexico at 9%. The original target China only imports 2% of the U.S. steel imports.
Along with fighting the tariffs at the World Trade Organization, European officials have been preparing levies on an estimated $3 billion worth of imported American products in late June. In a joint statement, ministers from France and Germany said the countries would coordinate their response.
Steel And Aluminum Statistics
Below you can see a few interesting statistics on Canada-U.S. cross-border steel and aluminum trade.
- In 2017, Canada exported nearly $17 billion of steel and aluminum products into the U.S. (Statistics Canada)
- More than $14 billion of steel crossed the Canada-U.S. border in 2017 (Canadian Steel Producers Association)
- Canada exported $11.1 billion of aluminum and aluminum articles to the U.S. in 2017 compared to $3.6 billion of imports from the U.S. (Statistics Canada)
- Close to 45% of Canada's steel production is exported to the U.S. Predominantly to Michigan, Ohio, Illinois, and New York.
- Over 50% of American steel exports go to Canada.
- Canada sent more than $5.6 billion of primary aluminum exports to the U. S. in 2016. New York, Kentucky, Michigan and Pennsylvania are the top destinations.
- Between 2000 and 2015, Canada's share of world aluminum production fell from 10% to 5%. For the U.S. from 15% to 2.7%. While China's increased from 11% to 55%.
- U.S. aluminum production fell following the 2008 financial crisis and recession. It was up 6.9% in 2018 from 2017.
- Canadian aluminum production is down 7.6% for the first two months of 2018 compared to the same time in 2017.
The Beginning Of The End For NAFTA?
With the likelyhood of eliminating multilateral trade agreements in favor of bilateral trade agreements. In order to have control over your trade in these uncertain times, you must arm yourself with the knowledge of what your duty rates will be without NAFTA, alternative countries of origin for your imported goods and freight quotations on getting your goods from your new origin to the final destination.
You can talk with our trusted trade advisors to determine your rate of duty without NAFTA. Click here to get in contact with a trade advisory expert today.