UPDATE: Sept 15th 12:45 CST: The United States Trade Representative (USTR) announced this afternoon that it will roll back tariffs on Canadian aluminum, following Canada's proposed tariffs, described below, which were supposed to go into effect Sept. 16th. However, the U.S. is still reserving the right to impose tariffs retroactive to a given month if import volumes exceed 105% of expected volume in that month. Read more from the USTR here.
It’s been an umprecedented year for U.S. manufacturers, between coronavirus and its disruption to the supply chain; factories closing down and later restarting operations; and some retooling entirely in order to help boost PPE production.
Meanwhile, Phase Two of trade talks with China have stalled, taking a back seat to ongoing efforts to the ongoing impact of coronavirus on the economy.
When we last visited the subject of tariffs in late 2019, the first step of a new trade deal with China has been reached, while the long-awaited USMCA treaty, otherwise known as the “New NAFTA” was finally set to be put in motion.
Since then, a revised USMCA was signed into law in January 2020.
That trade deal was somewhat short lived, with the Trump administration declaring new tariffs on Canadian aluminum in early August. Canada has since struck back with its own proposed set of tariffs, due to go into effect September 16th.
This article will take a look at the details of the new tariffs and provide more information about Canada’s plans for response.
Trump Administration Imposes New Tariffs on Canadian Aluminum
President Trump announced August 6th that the U.S. would be reimposing a 10% tariff on Canadian aluminum in order to help boost domestic production. This news was imparted during his tour of the Whirlpool factory in Clyde, Ohio.
Meanwhile, Canadian trade authorities described the White House’s new trade move as “deja vu in the worst possible way.”
This is not the first time tariffs have been imposed on Canadian products. In early 2018, the administration enacted tariffs on both Canadian and Mexican steel and aluminum. Those tariffs were eased once the trade deal (USMCA) between the three nations was signed, but the U.S. reserved the right to reinstate the tariffs in the event either country flooded the U.S. with imports.
President Trump cited this as the reason for the sudden reinstatement of tariffs on Canadian aluminum, stating, “My administration agreed to lift those tariffs in return for a promise from the Canadian government that its aluminum industry would not flood our country with exports and kill all our aluminum jobs, which is exactly what they did. Canadian aluminum producers have broken that commitment.”
A statement posted on Whitehouse.gov also alluded to the national security threat of excessive aluminum imports “in such quantities and under such circumstances as to threaten to impair the national security of the United States.”
Also according to the statement, imports of non-alloyed unwrought Canadian aluminum accounts for 59% of the total aluminum imports from 6/2019 through 5/2020, and Canadian imports have increased by 87% for this aluminum subtype.
Over the summer, some U.S. aluminum producers were urging the government to reinstate aluminum tariffs. This follows Alcoa’s announcement that they had idled production at its Washington state aluminum smelting plant, citing the plant as “uncompetitive.”
Canada is the U.S.’s third largest supplier of goods, according to the USTR. The USTR also states that imports from Canada totaled $318.8 billion in 2018. This is down 6.1% from 2008, but up 6.6% from 2017.
U.S. exports to Canada were nearly $357.1 billion in 2019 and Canada accounts for roughly 18% of exports from the United States.
Canadian Responds with Tariffs; List of Products
Not surprisingly, Canada plans to retaliate against the new tariffs with a levy of their own, reminiscent of the chain of events set in motion when tariffs were imposed the first time around.
Canadian Prime Minister Justin Trudeau announced a Canadian tariff response that will “include dollar-for-dollar retaliatory tariffs” in the region of $3.6 billion.
The list of possible products on Canada’s tariff list include aluminum ores and concentrates; unwrioght aluminum; aluminum alloys and foils; washing machines; bicycles; metal office furniture; and golf clubs.
You can see the entire list of proposed items here.
These tit-for-tat countermeasures are expected to go into effect Wednesday, September 16th. This will have a big impact on many U.S. producers, as Canada is the nation’s top export market, and more than 30 states list Canada as their top export market.
For instance, Canada accounts for 30% of Iowa’s export market and manufacturers in that state are worried over the increased costs to export goods.
On the other hand, aluminum producers and some downstream buyers benefit from tariffs on foreign imported aluminum. According to the Economic Policy Institute, 18 of the nation’s 23 aluminum smelters shut down between 2010 and 2017, and by 2017 only one smelter remained in operation.
Shortly after the establishment of the Section 232 tariffs in 2018, many of these facilities were restarted, including Magnitude 7 Metals, LLC in Missouri; several Alcoa sites in Indiana; and Century Aluminum in Kentucky.
The EPI study found that domestic production of raw alumina and refined & processed aluminum rose 9.8 percent between February 2018 and October 2018.
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