Tariff Talk

Understanding the United States and Canadian Trade Wars

June 28, 2018

The United States and Canada are feuding. Once friendly neighbours, we are now in a bitter fight. When the U.S. stated it would be imposing tariffs on imports of steel and aluminum products at the rate of 25 and 10 percent, Canada was shocked. In retaliation, Justin Trudeau announced similar trade restrictions on U.S. imports, including steel and aluminum and other products ( think yogurt and ketchup). As news of the tariffs spread, most Canadians stood behind Trudeau- even some of those from opposing political beliefs. As things escalate, there is fear that a recession may be on the horizon. So how will both countries be affected? To understand that, we need to look at where it all started.

Donald Trump Announces Steel and Aluminum Tariffs Against Canada

Previously exempt from the tariffs the U.S. imposed earlier on in the year, Trump announces the European Union, Canada and Mexico are now subject to the same. All three countries condemn these actions and threaten retaliatory tariffs. Justin Trudeau is in disagreement about the impact and motives of such a move by the U.S. and calls the decision “disappointing.” Trump’s reasoning for the tariffs? Section 232 of the Trade Expansion act of 1962, which allows the President the authority to impose tariffs if national security is at risk. The allies are unconvinced.

Tension Mounts Amidst the G7 Summit

The evening before the summit, Donald Trump tweets about Trudeau and Canadian and U.S. relations. The G7 summit highlights a growing resentment and discord between the United States and other nations. President Trump leaves the summit early to attend a meeting with North Korean Leader Kim Jong Un. Upon his departure, Prime Minister Trudeau calls the tariffs “kind of insulting” and states that Canada “will not be pushed around.” This prompts Trump to describe Trudeau as “meek and mild” in the summit meetings.

An Uncertain Future

With President Trump taking an aggressively protectionist viewpoint and Prime Minister Trudeau refusing to stand down, a trade war may be inevitable. While they are still in talks before the July 1st deadline for imposing tariffs against the United States, finding a resolution is challenging. From a re-election standpoint neither leader wants to appear docile. Voters tend to rally around leaders who are seen as “defending” their land and their prosperity. Nationalism can be a powerful influencer.

In an all-out trade war, nobody wins. As steel industry expert Peter Warrian explains, “A major cause and effect of the Depression, when we went from a booming economy of the 1920s to a Depression in the 1930s, was a trade war. Everybody started to raise tariffs against everybody else. That’s the risk: everybody loses.” It becomes a personal rather than political stand wherein each party tries their best to inflict the most pain (economically) on one another. The bystanders are industry, employment and economic growth. Consumers will ultimately pay the price and both countries will suffer if a fair resolution cannot be reached.