U.S. President Donald Trump and Prime Minister Mark Carney at the G7 Summit in Kananaskis, Alta., in June.BRENDAN SMIALOWSKI/AFP/Getty Images
Wolfgang Alschner holds the Hyman Soloway Chair in Business and Trade Law at the common law section of the University of Ottawa.
The frenzied tariff announcements of recent weeks risk obscuring a simple fact: most Canadian exports face no tariffs when entering the United States.
Goods that are compliant with the rules of origin of the United States-Mexico-Canada Agreement have been exempted from tariffs imposed in February based on White House claims about fentanyl coming from Canada, and what the U.S. calls “reciprocal” tariffs, which are poised to come into effect on Aug. 1. No such exemption has been granted to other countries.
South Korea, for example, which renegotiated its own free-trade agreement with the United States during the first Trump administration, now faces a steep 25-per-cent tariff. German and Japanese auto part manufacturers must pay a 25-per-cent tariff when exporting to the U.S. compared with tariff-free access for Canadian USMCA-compliant auto parts. Even Britain, which struck a trade deal with the U.S. in June, only secured limited sectoral duty exemptions, and is subject to a 10-per-cent tariff for all other exports.
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In short, compared with the rest of the world, Canada and Mexico enjoy unrivalled access to the American consumer market. What then is Prime Minister Mark Carney aiming for in current trade talks with the U.S.? And what is he thinking when he follows U.S. sectoral tariffs with trade walls of his own?
Going back to the days of fully liberalized trade in North America seems out of the question while the self-styled “tariff man” occupies the White House. Nor can Mr. Carney expect to significantly reduce tariff-induced business uncertainty, which is stifling new investment. Mr. Trump concludes deals with fingers crossed behind his back. He has proven ready to move away even from legally binding arrangements he previously agreed to.
Perhaps Mr. Trump’s untrustworthiness is precisely what is on Mr. Carney’s mind as he pursues trade talks: We still have mostly tariff-free trade today. But what about tomorrow if Mr. Trump rips up USMCA? Yet the argument for talks is also the argument against them: In Mr. Trump’s world, uncertainty is a feature, not a bug, and any promise to his trading partners is only a short-lived reprieve.
Given that there is little to gain in trade talks in terms of broad-based tariffs, Mr. Carney’s energy in such talks is likely directed at the sectors hit by sectoral U.S. tariffs, namely steel, aluminum, copper and lumber. But any gains to be had are hard-won and only marginal in scope. That is because these tariffs have been imposed on national-security grounds. The question under the applicable U.S. statute is not whether Canadian steel or lumber threatens U.S. national security, but whether U.S. domestic production capacity is sufficient to meet projected national defence requirements. If the U.S. goal is to achieve self-sufficiency for defence purposes in critical industries, there is little Canada can offer.
That has not discouraged Canada from trying. Both the withdrawal of the digital services tax in the face of U.S. criticism and the recent imposition of trade restrictions on steel imports into Canada must be seen as gestures of goodwill toward Mr. Trump. Sooner or later, though, Canada will have to stop giving without receiving and shift gears.
First, Canada should recognize that the status quo is likely the best trade deal it can get. Let’s ride that wave as far as it carries us. A review of USMCA is looming down the road where Mr. Trump will inevitably demand new concessions while offering at best only the more restricted market access Canada currently enjoys. While the USMCA review is more threat than opportunity, time is on Canada’s side. With any luck, markets may have soured, inflation is up and midterms around the corner by the time USMCA renegotiations enter their final stretch, which should give Canadian negotiators additional leverage.
Second, most products affected by tariffs are commodities that can be traded on global markets. While not as convenient as shipping to the U.S., Canadian aluminum, steel, copper and lumber can be sold to Europe and Asia. A key policy goal must thus be to cushion the blow for the industries affected by Mr. Trump’s tariffs, but without upsetting future customers outside the United States. Buy-Canadian procurement and temporary import restrictions to prevent imports diverted away from the U.S. to flood the Canadian market are sensible in principle. In practice, however, Canada’s latest steel trade restrictions have been implemented in a way that is unnecessarily discriminatory and illegal under global trade rules. It will likely upset those very markets that Canada looks to as alternatives to the U.S.
Lest Canada wants to see barriers erected against its own wares by Japan or the EU, it needs to do better. Working with, rather than against, like-minded countries and playing by global trade rules is the only way to diversify Canadian trade away from the U.S.