On June 19, the federal government said it will freeze at 2024 levels imports of steel from countries with which it doesn’t have free-trade pacts. Steel coils are seen in a yard at ArcelorMittal Dofasco's steel mill in Hamilton, Ont.Cole Burston/Getty Images
The first step is always the hardest, as the saying goes. After that, one has momentum. But on the question of steel imports, that forward impetus is precisely what Ottawa should be careful about.
On June 19, the federal government said it will freeze at 2024 levels imports of steel from countries with which it doesn’t have free-trade pacts. If those jurisdictions, which include China, India and Turkey, exceed the quota, Ottawa says shipments will be subject to a 50-per-cent tariff.
It was the first major step the government of Prime Minister Mark Carney has taken to aid Canadian steel producers, which are currently caught between a hammer and an anvil when it comes to international trade.
The hammer is U.S. President Donald Trump, who slapped 25-per-cent tariffs on steel and aluminum imports in March, triggering reciprocal counter-duties from Ottawa.
Mr. Trump then upped the ante in early June with 50-per-cent duties on almost all foreign imports of the two metals. The move could cut Canada off from its main export market, which accounts for roughly half of domestic production.
The anvil is China, which has for years been inundating world markets with ultra cheap steel. Its subsidies for producers of the metal are five to 10 times higher than those in other countries, according to the Organization for Economic Co-operation and Development.
The resulting glut has sent global prices plummeting and forced steel producers elsewhere to scale back or close shop.
Under Justin Trudeau, Canada put a 25-per-cent tariff on Chinese steel and aluminum imports, mimicking a move by former U.S. president Joe Biden last year.
But China has been circumventing trade barriers by shipping through third countries. And enterprises backed by the formidable heft of Beijing’s coffers have also been investing in new production capacity abroad.
Mr. Carney’s new cap on trade is meant to protect Canada’s mills from the threat of a surge of cheap steel imports resulting from shipments being diverted away from the U.S. because of Mr. Trump‘s tariff wall. It also buys the government time to reach a new trade agreement with Washington.
The quota is a measured step that keeps Canada playing by the international-trade rule book. A member of the World Trade Organization may impose temporary import restrictions when a domestic industry is threatened by a sudden increase in imports.
But Ottawa has also hinted it is considering more tariffs. The question is how far it’s prepared to go. Unsurprisingly, the steel industry wants a crackdown on imports.
Algoma Steel Group Inc. chief executive Michael Garcia, for example, has asked for much lower import caps and for quotas to extend to free-trade partners such as South Korea, Vietnam and the European Union, which, he says, have all been selling steel at artificially low prices.
Mr. Carney should make it clear he has no intention of setting up Trump-style trade fences around Canada’s steel mills.
To argue why, he could easily point to what happened in the U.S. when the current resident of the White House had his first go at steel tariffs, imposing 25-per-cent duties in 2018.
The measure added US$270,000 to steel industry profits for each steel job saved, according to a study by the Peterson Institute for International Economics. But the annual cost to U.S. industries that use steel was a massive US$650,000 for each job preserved.
It’s basic economics. Trade barriers reduce foreign competition, which typically allows domestic producers to charge higher prices. Buyers bear the cost
A macroeconomist such as Mr. Carney surely knows all too well that pricier steel would run up the bill for many of his key election promises, from building infrastructure to boosting the housing supply.
And, in the long run, coddling steel producers with protectionist policies would harm the industry itself, taking away the drive to innovate and stay competitive.
Any further steps to protect the sector should come only after Ottawa can show that unfair market-distorting practices are taking place, in accordance with WTO rules. And Canada’s response should be proportionate to the offense.
In the U.S., the issue of Chinese overproduction has become cover for protectionist measures that favour the steel industry in key swing states at the expense of other sectors and consumers. Canada should not follow in those footsteps.