By Patrick O’Brien (AIMS On Campus Student Fellow)
The trade war amongst Canada and the United States is beginning to gain momentum as Canada slaps counter-tariffs on steel and aluminium products being shipped in from the U.S. Canada announced on July 1st the implementation of the same tariffs by percentage on steel and aluminum products at 25 percent and 10 percent respectively, and a list of other goods that would be tariffed at 10 percent similarly. The list of counter-tariffs was designed to have the same dollar per dollar affect as the U.S tariffs on Canada and was not very different from the action other Countries took such as Mexico, Turkey, and Europe.
What is the U.S trying to accomplish with these tariffs on many Countries including Canada? Essentially by implementing large tariffs on Steel and Aluminum this allows for the U.S produced metals to become more desirable, as they now cost relatively 25 percent (10 percent for aluminum) less than their foreign competition. This kind of protectionist policies hurt both sides of the economy. At a time when the situation around NAFTA is uncertain (as described in previous articles) implementing tariffs on your trade partner doesn’t help negotiations, especially when there was no discussion prior to.
In a recent conference in Winnipeg, U.S politicians met with Canadians to find regional trade solutions that can be taken to resolve/counteract the new tariffs. During the conference, Martin Nelson who is a Democrat in the North Dakota house representative states that “Americans are feeling the effects of the counter-tariffs not only through a higher cost of steel and aluminum, but also in the other goods such as food products that Canada rolled out tariffs against the U.S. Farmers in Western U.S would also feel the of the tariffs, more specifically those who are in debt to the banks that finance their operations. They may have to sell crop to at lower prices to meet bank capital stipulations and suffer large losses.
New discussions are also arising from the Trump administration about a possible 25 percent tariff on vehicles imported from Canada. This is one of the largest concerns for Canada, as it would almost completely decimate the Canadian auto Industry. Analysis conducted by the University of British Columbia concludes that failure to maintain a NAFTA agreement would lead to a 30 to 40 percent decline in the Canadian auto industry. This is not including the possibility of a 25 percent tariff as described above. Alternatively, the U.S would also be affected by imposing an auto tariff on Canada, as auto parts are shipped back and forth across U.S-Canadian border many times over to complete production of the car. If the U.S were to tariff the Canadian auto industry, then a counter-tariff would only make sense to compete. This would result in higher costs in the industry, loss of jobs, manufacturing plant shutdowns, and ultimately the consumer would be at a lose due as this would translate to a substantially higher cost of cars.
In conclusion, we as Canadians realise that something must be done to compete with the U.S economy, whether that is looking for opportunities abroad in Europe or Asia (thereby increasing our bargaining power) while simultaneously coming to an agreement with the U.S on fair trade practices that benefit both parties.