Trade Tensions Flare: Trump’s Steel and Aluminum Tariffs Threaten US-Canada Economic Interdependence
President Donald Trump’s recurring tariff threats, this time targeting steel and aluminum imports scheduled to commence on March 12th, have raised eyebrows and sparked frustration in Canada, one of America’s closest allies and trading partners.
Frustration and Uncertainty in Canada
"It’s like every day it’s whack-a-mole," said Matthew Holmes, Executive Vice President and Chief of Public Policy at the Canadian Chamber of Commerce. "The goalposts keep moving, and one day it’s for this reason and it’s applying to the whole economy, and the next day it’s for a different reason and it’s just one sector."
The threat of tariffs follows a brief pause in the administration’s plans to impose 25% tariffs on products from Canada and Mexico. While whether a similar reprieve will occur in the case of steel and aluminum tariffs remains uncertain, the stress and anger felt in Canada are evident.
Intertwined Economies
Canada is not merely a neighboring country but also the top export destination for 34 U.S. states, including Michigan. In December alone, Canada accounted for 13.9% of total U.S. trade, totaling over $62 billion.
The close economic ties between the two countries are particularly pronounced in the automobile industry. Detroit and Windsor, Ontario are not simply separated by a border but are interconnected parts of an integrated automotive ecosystem.
Impact on Auto Industry
According to Ford CEO Jim Farley, 25% tariffs on products from Canada and Mexico would "blow a hole in the U.S. industry that we’ve never seen." Tariffs effectively impose a tax on imported goods, leading to increased costs for consumers and disruptions in supply chains.
The auto industry, in particular, relies heavily on cross-border supply chains. Auto parts cross the border multiple times during the production process, leading to potential cost increases with each tariff applied.
Elimination of Duty Drawback
A key aspect of the president’s tariff orders is the exclusion of the duty drawback provision. This provision allows parts crossing the border multiple times to avoid being subject to tariffs each time. Its elimination would significantly impact the auto industry’s supply chain.
Canadian Response
Canada’s planned "first phase" of its response to the initially announced Trump tariffs included 25% tariffs on a range of products from the United States, including orange juice, peanut butter, and footwear.
Long-Term Impact
Experts believe tariffs, if implemented, would have negative consequences for both the United States and Canada.
"Canada is going to have retaliatory tariffs because Canadians will be upset about it, and they are going to demand that of their politicians," said David Soberman, a professor of marketing at the Rotman School of Management at the University of Toronto. "Canadians will have to pay more, but that’s when you get into a trade war. Typically, everybody loses. That’s the problem."
Conclusion
The Trump administration’s tariff threats have created uncertainty and tension between the United States and Canada. The close economic interdependence between the two countries makes sustained tariffs a scenario that would lead to pain on both sides.
