Monday 27 May 2019

Canada has its day as birthday party marked by Trump tariff retaliation

Canadian Prime Minister Justin Trudea and US President Donald Trump
Canadian Prime Minister Justin Trudea and US President Donald Trump

Josh Wingrove, Stefanie Marotta and Theophilos Argitis

From mustard to motorboats, Canada's firing back against Donald Trump on its national holiday. Prime Minister Justin Trudeau will mark Canada's 151st birthday today by imposing tariffs finalised Friday on about C$16.6bn ($12.6bn) worth of US imports in response to American levies on Canadian steel and aluminium that went into effect a month ago.

While the tariffs alone are unlikely to derail Canada's expansion or boost overall inflation, they add to the growing tension between two of the world's biggest trading partners. Talks over a new North American Free Trade Agreement (Nafta) have stalled, and Trump has threatened to impose additional duties on cars.

Canada, meanwhile, is preparing fresh duties as early as next week on non-US steel imports to prevent dumping. "It's regrettable that we have to engage in this kind of tit-for-tat trade war, but it's been forced on us by Mr Trump," Toronto-based trade lawyer Lawrence Herman said in a phone interview. "Canada has no choice but to respond in accordance with the rules of international trade."

Trudeau will lead the Canada Day festivities by visiting a pair of trade battlegrounds today: a southern Ontario town near the US border once famous for Heinz ketchup, and a steel mill in Saskatchewan, meeting workers in each.

The prime minister's tariffs on US goods cut a broad swathe from steel and aluminium to whiskies, toilet paper, washing machines, motorboats - even maple syrup. The duties will be 25pc on steel and 10pc on everything else.

The government had initially identified potential tariffs on C$19.4bn in goods before paring down the list after consultation. The final tariff list was revealed last Friday, removing items like beer kegs and mustard, along with C$2bn in support for the domestic steel and aluminium industries. The tariffs are overwhelmingly popular in Canada, according to most polls, but come with unease as prices may rise on hundreds of goods.

Still, the economic impact of the latest tariffs fight is minimal compared with a pair of other looming Canada-US trade issues: potential car tariffs, and threats to end Nafta. Trump and Trudeau have clashed recently, with the president warning Canada will pay for it.

"If they said tomorrow those auto tariffs are in place, it becomes a meaningful hit," said Mark Chandler, head of fixed-income research at RBC Capital Markets. "People are more worried about what happens to autos."

There are mixed views on how quickly Canada should proceed with its retaliation.

Canada's biggest steelmaker, a unit of ArcelorMittal, has warned 1,000 direct jobs are at risk from the US levies. Ken Neumann, the United Steelworkers' national director for Canada, told lawmakers last week he was "very concerned that the Canadian industry has already been harmed by the one-month delay".

But others worry the government is moving too fast. Domestic steel construction companies across the country are anticipating price hikes from Canada's retaliatory tariffs, as competition and supply of steel in the market continues to drop. "We saw the US prices go sky-high, which had an impact on pulling Canadian prices up," said Tim McMenamin, vice president at Ferrostaal Steel Canada. Retaliatory tariffs will push prices even higher, he said "If I had a message for the federal government today, it would be look before you leap," Manitoba Finance Minister Cameron Friesen said in Ottawa during a meeting of provincial finance ministers. It's a view echoed by one business owner during lawmakers' hearings.

"I believe Trump is a bear, we shouldn't be poking him too much, the bear will start roaring," said Bob Verwey, president of Owasco, a car and RV sales company. The direct economic impact from the US metal tariffs and Canada's retaliation - either in terms of economic activity or inflation - are expected to be small. Jean-Francois Perrault, chief economist at Scotiabank, expects a "maximum" 0.1 percentage point hit to growth, and less than a 10th of a percent on inflation. Steel costs may rise further if Canada follows through on plans to impose tariffs and quotas on non-US imports from China and other countries.

Canada also faces risks from the US-China trade dispute. It sends three-quarters of its exports to the US, so any slowdown in American growth will impact Canada. At the same time, it's a major oil producer and any Chinese slowdown could crimp demand. "If you get a major trade war, the probability of recession is real," said Perrault.



Also in Business