Trade Battle Heats Up

June 7, 2018

The past week brought renewed worries of a trade war, as the Trump Administration moved to impose heavy tariffs on steel and aluminum imports from Canada, Mexico and the European Union.  A deal to re-work the North American Free Trade Agreement (NAFTA) seems doubtful.  Administration negotiators failed to gain significant concessions from China on a separate dispute involving intellectual property.  The U.S. faces potential trade retaliation from a variety of countries, including some of its closest allies, and agricultural exports are likely to suffer if the tariffs stay in effect.

The steel and aluminum tariffs were first invoked this spring against a range of countries but the European Union (EU) and the two NAFTA partner countries had been exempted until now.  Those exemptions expired June 1, and the EU, Canada and Mexico filed complaints in the World Trade Organization against the U.S. tariffs.

The EU announced tariffs on $3.3 billion worth of U.S. goods including corn, rice, fruits, steel and aluminum, effective July 1.  Canada has also announced retaliatory tariffs on U.S. steel, aluminum, and other goods worth $12.8 billion, effective immediately. Mexico plans to invoke tariffs primarily on steel and aluminum products but also on some agriculture goods – cheese, fruits, bourbon and pork – exports in total valued at $3 billion, effective July 1.

The steel and aluminum duties were imposed under an obscure law that allows the President to invoke virtually unlimited tariffs if national security is threatened.  This meant that steel and aluminum imports had to be considered a threat to national security.  The implication was that U.S. national security is threatened by Canada, among the largest sources of the imports, but also a military and economically for over a century.