We were warned early on by Canadian Foreign Affairs Minister Chrystia Freeland that the NAFTA talks would be rocky. She was right. We are through seven rounds and more clouds hang over the talks than ever.
With a Mexican election on July 1, and the fall U.S. midterms surely pushing talks into 2019, the U.S. President has looked to the steel tariffs to shake the trees loose, so to speak.
In a week that showed how protectionist President Trump really is, Canada and Mexico now face hostage-taking tactics by their neighbour. Meet the White House’ terms, or else…
We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must..
— Donald J. Trump (@realDonaldTrump) March 5, 2018
…treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying.
— Donald J. Trump (@realDonaldTrump) March 5, 2018
The steel tariffs are being described as a national security issue, which might lead us to think it’s about steel being dumped onto the U.S. market by an over-supplying China, but it really looks like a decision to punish allies.
As the number one seller of both steel and aluminum to the U.S., Canadian officials have been working hard behind the scenes. It’s been a full-court press. One pundit on CBC’s The National on Thursday said Canada has probably done more lobbying this week than in the last year. But publicly they have been relatively quiet. Democrats and Republicans have been the ones providing the vocal pressure on the President to stand down on this treatment of allies around the world.
This strategy of Congress indirectly lobbying the President on behalf of Canada is a further testament of Canada’s NAFTA strategy from day one and supported by David Frum’s comment last year that “Canada has more friends in Congress that Donald Trump does.”
Influential Republicans like Orrin Hatch (R-UT), Jeff Flake (R-AZ) and House Speaker, Paul Ryan (R-W have stood up and voiced their disagreement with the White House on this protectionist behavior.
“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” Paul Ryan said in a statement to Inside Trade. “The new tax reform law has boosted the economy and we certainly don’t want to jeopardize those gains,”
Steel tariffs and NAFTA were the focus of a panel discussion on Agritalk on Friday with RealAgriculture’s Shaun Haney, Jim Wiesmeyer of Farm Journal, Iowa farmer Pam Johnson and host Chip Flory. (Agritalk can be heard on Rural Radio 147 on SiriusXM on weekdays at 2pm eastern.)
Similar to the President’s resolve on making changes to immigration, health care and gun control, “the bark is much harsher than the bite” to quote Farm Journal’s Washington, DC policy analyst, Jim Wiesemeyer.
Section 232, which is an investigation under the authority of the Trade Expansion Act of 1962, has been used to justify the 25 percent and 10 percent steel and aluminum tariffs. The purpose of the investigation is to determine the effect of imports on national security. Canada has always said that the notion U.S. imports of Canadian steel and aluminum are unfounded and unfortunate considering our mutual interest in NATO.
Update: The word from the Canadians on how they’d respond to a temporary-tariff-carveout-which-is-actually-a-negotiating-gun-to-the-temple-on-NAFTA. No change. No leaving the bargaining table, no faster movement in response to threats https://t.co/voxl8rFESq
— Alexander Panetta (@Alex_Panetta) March 8, 2018
The Section 232 tariff narrative was quickly switched to a NAFTA negotiation strategy, but it was forced back to national security when the temporary carve out for Canada and Mexico was granted.
As of today the exemption for Canada and Mexico is temporary and based on how the NAFTA talks progress. Other countries like Australia and the EU have been told they could be carved out as well, based on trade concessions provided to the United States.
This week I presented to group of Syngenta customers on the state of Canada/U.S. political and trade relations. There is major concern about the precedent this steel tariff sets. “If Trump applies a tariff to Canadian wheat like he threatens to on steel, it will be devastating,” said one grower.
In Western Canada, ranchers and the feedyards are beginning to wonder if R-Calf could create detrimental impacts by having the president apply tariffs on Canadian feeder and fat cattle heading south like he is with steel.
In the past the beef industry in Canada, Mexico and the United States have argued relentlessly for the benefits of their integrated industry. In the case of steel and aluminum, the supply chain integration argument only gained Canada and Mexico a temporary carve out. The lack of leverage that the integration argument has provided the steel industry should be a cause for concern for agriculture.
The exemption on the steel tariffs will provide short-term relief but not comfort for Canada as Trump plans to turn up the heat. Agriculture in Canada, the U.S. and Mexico will be watching closely in the coming weeks as President Trump raises the stakes in an attempt to speed up the talks before July 1, 2018.