When you break norms, those norms are very difficult to re-establish,’ says one former policy adviser to the Canadian Embassy in Washington, D.C.
Despite the safeguards against damaging penalties on Canada’s auto industry under the continent’s newly renamed trilateral trade agreement, the American ability to impose destructive tariffs under the guise of national security protection remains a lingering threat, according to trade experts who warn the damage may have already been done with aluminum and steel.
Since May 31, Canadian aluminum and steel have been subject to tariffs of 10 per cent and 25 per cent, respectively, which were imposed under Section 232 of America’s Trade Expansion Act. The provision in the 1962 legislation allows the U.S. government to impose quotas or tariffs on imported products for national security reasons—a rarely used tool before the administration of U.S. President Donald Trump.
If the U.S. wants to impose more tariffs on Canadian goods, it can say anything is a national security threat, since it’s already done it once, said Eric Miller, a former senior policy adviser to the Canadian Embassy in Washington, D.C., and current head of the Rideau Potomac Strategy Group.
“You have this situation where something that was meant to be a rarely used instrument has now become something that, over the course of the last few months, has basically become a normal part of trade policy that is designed to drive changes and concessions from established U.S. trading partners,” Mr. Miller said.
Canadian negotiators were unable to get the steel and aluminum tariffs lifted as part of the USMCA talks, but speaking to reporters on Oct. 1 in the National Press Theatre, Prime Minister Justin Trudeau (Papineau, Que.) flanked by Foreign Minister Chrystia Freeland (University-Rosedale, Ont.) said, “moving forward on eliminating the tariffs on steel and aluminum remains a priority for us.”
Ms. Freeland added that Canada is looking to take advantage of the momentum that they have generated through the conclusion of USMCA negotiations to “intensify conversations” on steel and aluminum tariffs.
During negotiations, Canada was able to gain some protections from additional Section 232 actions, through two separate side letters in the trade pact. Canada is exempted from auto tariffs under a threshold of 2.6 million passenger vehicles exported to the U.S. from Canada annually, as well as on all light trucks, and $32.4-billion US worth of auto parts. Canada also was granted a 60-day reprieve before a Section 232 action comes into effect where Canada and the U.S. can negotiate a resolution to the dispute.
The exempted 2.6 million exported passenger vehicles exceed both Canada’s recent exports across its southern border and its production capacity, according to the Canadian government.
Mr. Trudeau called the side letters “significant protections for our auto industry,” and the 60-day delay “a bit of an insurance policy.”
Mr. Miller echoed Mr. Trudeau’s words, saying Canada won’t be hitting its quota limit under the side letter in the case of a 232 action “anytime soon.”
“The expectation is that with the USMCA process behind us, then there will be a process of unwinding those tariffs,” Mr. Miller said. “Although it certainly is not guaranteed.”
He added: “When you break norms, those norms are very difficult to re-establish.”
Section 232 the ‘gift that keeps on giving, says Canada West’s Carlo Dade
While it’s theoretically possible that the U.S. Congress eventually will become concerned with how the White House is using Section 232, Mr. Miller said, “they’re certainly not showing any signs of it so far.”
Retiring Republican Senator Bob Corker of Tennessee has been a vocal critic of Mr. Trump’s trade action, but has been in the minority in his party.
In June, he and 12 other Senators from both sides of the aisle—presented an amendment to give Congress—which has constitutional responsibility over tariffs—the power to override measures proposed on a national security basis.
“For this administration to now pretend that trading with Canada is a threat to our national security is an insult to our shared history, our veterans, and our allies around the world, not to mention a shot fired at our own economy,” Democratic Hawaiian Senator Brian Schatz said in a press release when the legislation was introduced.
The bill, which was initially blocked by Republicans and then revived in August, is unlikely to pass, according to The Hill, as it does not have the support of Mr. Corker’s Republican colleagues who fear upsetting Mr. Trump.
Canada has targeted Congress in its outreach campaign by cabinet ministers, diplomats like Canadian Ambassador to the U.S. David MacNaughton, and the Canada-U.S. Interparliamentary Group, among others.
Christopher Sands, the director of the Center for Canadian Studies at Johns Hopkins University, said the Canadian negotiators were aligned with those in Congress who wanted to see the 1962 trade act amended, the power the White House has over Section 232 cancelled, or a tighter definition of national security applied.
Prof. Sands said the Congress in the 1960s never would have thought the power would be used in such a way, as it was intended on being used against the Soviet Union or other communist bloc countries, the perceived great threat of the time.
“The 232 provision of the ’62 trade act remained on the books until Trump’s people just found it and said, ‘wow, this is great because it’s hard to stop this … [and] we can do what we want’,” Prof. Sands said.
Prof. Sands said if Congress passes the USMCA and its side letters, the White House will put forward the argument that Section 232 powers have been embedded because the agreement is contingent on having national security tariff powers.
Carlo Dade, director of the trade and investment centre at the Canada West Foundation, said the side letters are a “marginal consideration” from the Americans.
“We did not get any real reprieve from the sword that continues to hang over our head,” Mr. Dade said of the power of the U.S. executive to unilaterally impose a tariff.
Prof. Sands noted the Section 232 process doesn’t actually judge the rationale for a national security threat, instead it takes it as a given because the president has asserted that there is one.
“Typical of U.S. law, nobody wants to challenge the White House or the president on the determination of national security interests,” Prof. Sands said.
Mr. Dade added the side letter sets a precedent on limiting trade on products that are “politically problematic.”
He said he could not see the U.S. administration offering many concessions on Section 232, because “it’s the gift that keeps on giving.”
A Congressional Research Services (CRS) report estimated that the U.S. could collect $7.5-billion worth of duties on steel and aluminum in 2018 imposed worldwide, based on 2017 import levels.
Tariff shadows hang over Canadian uranium
Mr. Miller said one possible Canadian industry that could still come under threat is the uranium sector, as a side effect of actions that may actually be targeted towards Russia.
On July 18, the U.S. Department of Commerce initiated a Section 232 investigation over uranium imports that will look into everything from mining to enrichment and defence.
“Our production of uranium necessary for military and electric power has dropped from 49 per cent of our consumption to five per cent,” Commerce Secretary Wilbur Ross said in a press release.
Canada is the world’s second-largest uranium producer, behind Kazakhstan, with 22 per cent of the global production in 2017, according to Natural Resources Canada.
About 88 per cent of Canadian-produced uranium is exported, and in 2017 Canada was the largest foreign supplier of uranium to the U.S.
Mr. Miller said Canada would probably not be affected by a Section 232 measure, but he said countries are never fully comfortable until it’s announced that they won’t be subject to the action.
He said the problem in the wording of 232 actions is that all imports to the U.S. are looked at as a threat to national security and not products that come from a specific country. He added if that uranium case goes forward, Canada would have to get an exemption.
“What we’ve seen [in the case of steel and aluminum tariffs] is a crossing of the Rubicon,” said Mr. Miller, referring to the campaign of Julius Caesar and his army in 49 BC that pre-empted the Roman Civil War and the rise of imperial Rome. “And I’ve heard senior Canadian government officials say that they’ve used precisely that analogy: that the Rubicon has been crossed, and it’s very hard to go back.”