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Canada will not be subject to Trump’s steel and aluminum tariffs

But that could all change if Canada does not make nice on NAFTA, Trump warns

by Vanmala Subramaniam
Mar 8 2018, 9:54pm

Canada and Mexico will not be subject to tariffs on steel and aluminum imported in the United States, at least for the next little while, the White House said Thursday afternoon.

"Due to the unique nature of our relationship with Canada and Mexico ... we're gonna hold off the tariff for those two countries," Trump told reporters at a press conference, flanked by Vice-President Mike Pence and steel workers from Kentucky.

"If we don't make the deal on NAFTA, and if we terminate NAFTA ... we'll start all over again. Or we'll just do it a different way. But we'll terminate NAFTA, and that'll be it. But I have a feeling we're gonna make a deal on NAFTA... If we do there won't be any tariffs on Canada, and there won't be any tariffs on Mexico,” Trump said, implying a permanent exemption beyond the current temporary one.

Trump officially signed off on two proclamations that would impose 25 percent and 10 percent tariffs on all imports of steel and aluminum respectively, except from Canada and Mexico. Canada is the biggest supplier of both steel and aluminum to the United States, followed closely by Brazil, South Korea, Mexico and Russia.

The U.S., Canada and Mexico are currently in the seventh round of NAFTA negotiations. On Tuesday, U.S trade representative Robert Lighthizer said political headwinds would increase the longer the negotiations dragged on, warning that time was “running very short”.

“We would prefer a three-way tripartite agreement. If that proves impossible, we are prepared to move on a bilateral basis,” Lighthizer said in a statement from Mexico City.

The Trump administration is threatening an all-out trade war by invoking an obscure provision in WTO’s dispute settlement system in order to justify imposing the steel and aluminum tariffs — that of national security.

Section 232 of the Trade Expansion Act of 1962 allows the U.S. to impose trade restrictions in the name of "national security". The U.S. will of course have to justify that measure to the international trade community under Article XXI of the General Agreement on Tariffs and Trade, but it is a justification that few countries use, because it is arguably “self-judging”, meaning that an international body does not really have the authority to override what any nation considers a threat to its own national security.

It is also most probably the reason why Trump is invoking the national security argument, says John Weekes, Canada’s former chief negotiator of NAFTA, and currently Senior Business Advisor at Bennett Jones LLP.

“I think it’s been pretty clear that Donald Trump is just not a big fan of trade agreements and open trade,” Weekes told VICE Money.

“My most important job is to keep the American people safe,” declared Trump at Thursday’s press conference, pointing out how the decline of America’s steel industry is not just an “economic disaster” but a “security disaster”.

“Today I am defending America’s national security by placing tariffs on steel and aluminium. Some countries have flooded the world market with cheap metal that is subsidized by their own countries. It has been an assault on our country,” Trump said taking aim at China which has undeniably been flooding the world with cheap steel and aluminium over the last decade or so.

But what Trump failed to point out, is that Chinese steel only accounts for about three percent of American imports — countries like Canada, Brazil and South Korea make up the bulk of steel and aluminium imports.

“It’s got nothing to do with national security,” says Weekes. “He turns around and tells Canada if you’re good boys and girls and you agree to what we want in NAFTA then we will keep these tariffs off. What’s that got to do with national security?”

“It appears to be that other mechanisms [that are conventionally used in trade disputes], are regulated by the WTO and thus subject to strict requirements,” said Huge Perescano Diaz, one of the original negotiators of NAFTA and currently Director of Economic Law at the Centre of International Governance and Innovation.

“The national security exception has historically been considered to be self-judging by many countries, especially the U.S. thus it seems like the U.S. would argue that no country or WTO panels could second-guess the U.S. decision,” Diaz told VICE Money via email.

Weekes believes that Trump., with these latest tariffs, is perhaps trying to undermine the international trade system altogether. “They would like to dismantle the system of trade agreements. The major countries have an understanding that you don’t invoke the national security exception, because once you open that box, there’s no going back.”

On Wednesday, Trump’s top economic advisor Gary Cohn resigned as a result of Trump’s decision to impose the steel and aluminum tariffs. The European Union has already said it is prepared to retaliate to the tariffs on the range of U.S. imports, including peanut butter, cranberries and orange juice, targeting States in the Midwest where Trump’s base in the strongest.

The new tariffs will take effect on Friday, March 23.

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