Trump Announces Stiff Tariffs – No Breaks for Canada
U.S. President Donald Trump is ratcheting up his war on trade. On March 1, Trump threatened to hit steel and aluminum imports with massive tariffs. Doing so would mean Canadian producers of steel and aluminum would take a bit hit. A trade war with the U.S. could also undermine the Canadian economy, which limped in at 1.7% in the fourth quarter.
In early March, President Trump said he is going to slap a 25% tariff on steel imports and a 10% duty on aluminum in an effort to protect the national industry. News of Trump’s plan sent the share prices of U.S.-based producers higher but will most certainly hurt companies that ship steel and aluminum from Canada like Rio Tinto Group (Nasdaq:RIO) and Stelco Holdings (TSX:STLC).
Canada is the biggest supplier of steel and aluminum to the U.S., exporting nearly 90% to the U.S.—the most of any country. On top of that, Canada also accounts for 41% of U.S. aluminum imports.1 When it comes to the Canadian economy, steel and iron products account for two percent of Canadian exports.
While Canada and other countries will lobby Washington for an exemption it may not do any good. Trump said in a tweet that the U.S. won’t lower tariffs on steel and aluminum from Canada and Mexico unless the two countries agree to a NAFTA deal that is fair to the U.S.2
Trump also said that Canada must treat American farmers “much better,” and Mexico must stop drugs from “pouring into the U.S.”
Moreover, Trump advisor Peter Navarro and Commerce Secretary Wilbur Ross both suggested the decision, which is expected in the coming weeks, is close to final. In fact, Navarro said making an exemption would be bad politics because it would create a slippery slope.
“As soon as he starts exempting countries he has to raise tariffs on everybody else. As soon as he exempts one country his phone starts ringing from the heads of state of other countries,” Navarro said.3
In another interview, he noted that, “Canada is 40 per cent of the [American aluminum] market. If you exempt Canada, then you have to put big, big tariffs on everybody else. So this is a measured, targeted approach.”4
At the same time, Navarro said some businesses would be exempt from the metals tariffs.
“There will be an exemption procedure for particular cases where we need to have exemptions, so that business can move forward,” Navarro said.
For his part, Prime Minister Trudeau has said he is unhappy about the proposed tariffs and said it could undermine ongoing negotiations to craft a new NAFTA. Mexico has threatened to retaliate, and the European Union said it would hit the U.S. with a 25% duty on about $3.5 billion of imports if Trump goes ahead with his plans.
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A trade war with the U.S. could hit the Canadian economy hard. Not only did fourth-quarter GDP advance just 1.7%, the outlook for 2018 is muted. Meanwhile, Canadian stocks are down more than four percent since the start of the year and are flat over the last 10 years. For the professional traders at Learn-To-Trade.com though, none of this matters; whether the markets are bearish, running sideways, or tumbling, there are always ways to profit.
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- “Canadian Steel Makes Canada Stronger,” Canadian Steel Producers Association, last accessed March 5, 2018; http://www.canadiansteel.ca/wp-content/uploads/2016/06/Canadian_Steel_Industry_Stats.pdf.
- “@realDonaldTrump,” Twitter, March 5, 2018; https://twitter.com/realDonaldTrump/status/970626966004162560.
- “Canada Can’t Be Excluded From Steel, Aluminum Tariffs: Peter Navarro,” Huffington Post, March 4, 2018; http://www.huffingtonpost.ca/2018/03/04/canada-cant-be-excluded-from-steel-aluminum-tariffs-peter-navarro_a_23376449/?utm_hp_ref=ca-homepage.
- “Navarro says ‘no exclusions’ on steel and aluminum tariffs,” CNN, March 4, 2018; https://www.cnn.com/2018/03/04/politics/peter-navarro-steel-tariffs-sotu-cnntv/index.html.
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