Less than a week ahead of the new United States-Canada-Mexico Agreement taking effect, the Trump administration is threatening to reimpose tariffs on Canadian aluminum exports in a move that could reignite cross-border tensions and prompt some type of retaliation by the Trudeau government.
U.S. Trade Representative Robert Lighthizer signaled last week the possibility of such action being taken when he informed lawmakers in an annual review of the administration’s trade agenda, that his office was preparing enforcement challenges over various compliance issues with Canada and Mexico, including recent surges metal imports from both countries, which the USTR said are “of genuine concern to us now.”
Lighthizer indicated that discussions were currently ongoing with both countries over the matter, but primarily with trade officials in Ottawa, given the more “significant” increase in Canadian exports since last year.
Snap Back” Tariffs & the USMCA Side Agreement
In accordance with bilateral agreements reached on May 19, 2019, the Trump administration agreed to exempt Canada and Mexico from its Section 232 tariffs on steel and aluminum imports. The metals tariffs had been imposed by the Trump administration in 2018 as part of an effort to curb the growth of excess capacity/overproduction in China and elsewhere.
Under provisions of that deal, in the event steel and aluminum imports “surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share,” the U.S. is when consultations fail to resolve the problem, authorized to reimpose the 25% tariff for steel and 10% for aluminum.
Unfortunately, the agreement does not define the “period of time” involved or what would constitute a “meaningful” surge.
Informal talks have been ongoing in recent weeks between USTR and trade officials in both countries to work out the issue. In the case of Canada, Ambassador Lighthizer’s team is reportedly now demanding that if Ottawa does not move swiftly to curb exports to the U.S., it will face a “snap back” of the 10% duty beginning next month. It is not known what level of quota restriction the USTR is seeking.
For its part, Ottawa rejects voluntarily restraining production through quotas and maintains that Canada’s aluminum exports “aren’t hurting the U.S. market in any way.” On the contrary, it argues that as part of a deeply connected and “mutually supportive industry,” they are “a great help and benefit” to the American aluminum sector.
What’s the Problem?
The USTR seems to be acting in response to a petition filed last month by the American Primary Aluminum Association, a trade group representing Century Aluminum and Magnitude 7 Metals, two of the handful of primary aluminum smelters still operating in the U.S. In a May 20 letter urging the USTR to reimpose the 10% tariff, the APAA claims that a year-long “surge of Canadian metal has a caused the price to collapse and is endangering the future viability of the U.S. primary industry.”
Despite this, most of the U.S. aluminum industry opposes taking action against Canadian imports and supports maintaining the Section 232 tariff exemption for Canada. The Aluminum Association, which represents Alcoa Corp., Rio Tinto Group, and dozens of other producers and aluminum manufacturers says there is no need for the USTR to take action at this time because the “surge” in question simply doesn’t exist. The group argues that imports “are consistent today with levels prior to the implementation of Section 232 tariffs and below peaks in 2017.”
In a letter sent to USTR Lighthizer earlier this week, the group states that its members “strongly oppose any trade actions involving Canadian aluminum,” stressing that the government’s own data demonstrates that recent import levels are “largely consistent with historical trends and market fundamentals.”
The Aluminum Association of Canada also rejects claims of a threatening surge, labeling such allegations as “totally false” and “unfounded.” Instead, the group suggests the real issues prompting APAA’s complaints actually have more to do with “market dynamics” in response to a number of economic events that have occurred since the 10% tariff was lifted.
Unifor, the country’s largest private-sector labour group, was likewise dismissive of the notion that surging Canadian exports over the past year are “destroying what remains of the U.S. industry,” calling APAA’s assertions “preposterous and utterly divorced from reality.”
Flavio Volpe, president of Canada’s Automotive Parts Manufacturers Association, described the latest threat by the Trump administration as being entirely political in nature, saying it was further evidence that “an unprincipled extortion syndicate is in charge of U.S. trade policy.”
Spinning a Surge
In a June 23 letter urging the Trudeau government to reject any “concessionary demands” the administration may call for, Unifor president Jerry Dias details why the “misinformation campaign” being advanced by proponents of Trump’s metals tariffs is demonstrably false.
According to Dias, the numbers used by APAA to make their case “have been cherry-picked to obscure systemic weaknesses in the American aluminum industry as well as the central role that Chinese overcapacity and cheap offshore aluminum has played in lowering prices around the world.” He also notes the role the COVID-19 pandemic has had on markets as global demand collapsed amid widespread lockdowns.
Noting that U.S. primary aluminum producers’ are presently unable to meet anywhere near domestic demand, Dias points out that while imports of primary aluminum from non-Canadian sources by the U.S. more than doubled from 2011 to 2019, Canadian levels by tonnage has only seen a marginal increase over the same period of time.
USTR has indicated that a decision whether to “snap back” the tariff on aluminum will be made prior to the USMCA coming into effect on July 1. Potentially, this could have tremendous significance depending on the action taken by the administration. Several outcomes are possible based on the USTR’s findings, including the following:
- That no “meaningful” surge exists and, therefore, USTR takes no action, leaving the status quo in place until further review.
- There has been a “meaningful” surge of certain aluminum products and USTR applies the 10% tariff specifically to such goods (P1020 being the most likely target).
- The “meaningful” surge of certain aluminum products is part of a more widely threatening trend that can only be addressed by USTR reimposing the 10% tariff on all imported aluminum products from Canada.
Obviously, almost no one but the group seeking to have the tariff exemption lifted altogether is hoping for either of the latter two possibilities to materialize, most especially not a “snap back” of duties on all imported aluminum products from Canada.
Under such a scenario, although Ottawa had previously agreed per terms of the 2018 bilateral side deal to limit any retaliation solely to the aluminum sector, it may decide (arguably with reason) that if Washington’s enforcement of the “snap back” provision has not been made in “good faith,” then its options to hit back are similarly no longer bound by the deal’s constraints in this regard.
Why It Matters
Whatever the outcome, the USTR’s decision on this issue promises to offer some valuable insight into how the Trump administration intends to handle the enforcement provisions of the new North American trade agreement shortly coming into force. Going forward, it could also signal to businesses in a meaningful way, the extent to which assurances that the USMA will restore certainty can be believed.
Need More Information
If you have any questions about this pending decision by the USTR and its potential impact on your company’s imports, don’t hesitate to contact one of our knowledgeable trade experts today.