Aluminum: Is It Worth a Trade War?
JEC TORONTO — Nearly 3 months before the US federal elections, Washington imposed a tariff of 10% on a large variety of aluminum imports from Canada. To combat this, Prime Minister Justin Trudeau and Deputy Prime Minister Chrystia Freeland have promised to retaliate with $3.6 billion dollars worth of tariffs, igniting a possible trade war.
Why Did the US Impose the Tariffs in the First Place?
During early 2018, six months before the new USMCA trade agreement was signed, the US imposed tariffs on steel and aluminum imports. These tariffs mainly targeted Canada, Mexico, the EU, and China. Canada promptly enforced retaliatory tariffs against the US as the trade war caused numerous companies to go out of business. 6 months after, the USMCA agreement was signed, ending the trade war between the North American countries.
On August 6, 2020, the US reimposed the same aluminum tariffs on Canada. “This step, to reimpose tariffs, is absolutely necessary to defend our aluminum industry. To be a strong nation, America must be a manufacturing nation, and not be led by a bunch of fools. That means protecting our national industrial base. We have to protect our great companies and great workers,” said President Donald Trump in a Whirlpool (An American multinational manufacturer of home appliances) manufacturing plant (2020). President Trump claims that Canadian aluminum producers have “violated” their trade agreement, as Canada was exporting more aluminum to the US since the tariffs in 2018 were lifted. Alongside President Trump, 2 domestic aluminum producers, Century Aluminum and Magnitude 7 Metals, also pushed for the levies to be reinstated.
The Other Side of the Story
On the contrary, several manufacturers and governmental organizations opposed the reinstatement of the tariffs. Deputy Prime Minister Christya Freeland called the tariffs “ludicrous”. Promptly after President Trump made statements in the Whirlpool plant, the Canadian Government proposed dollar for dollar retaliatory tariffs. The goal for these proposed levies is to match the aluminum tariffs in cost and impact. “We do hope that when Americans look at [the tariffs], they will understand why having a tariff dispute is a really bad idea.”
Many sources say that the aluminum tariffs, should they be enforced, will have negative impacts on the American workers and manufacturers themselves, rather than the Canadian aluminum industry. American manufacturers require more aluminum than the domestic supply can produce, so they must import the remaining amount from foreign nations, such as Canada. The sudden surplus in aluminum imports that President Trump quoted was mainly due to the unveiling of the new USMCA trade deal. Enforcing these tariffs would backfire on American manufacturers and citizens. “Production will keep going on, exports will keep going on, and at the end, unfortunately, it’s the U.S. economy that will bear the brunt of this increase in tariffs,” said Jean Simard (2020), the president of the Aluminum Association of Canada.
The chart above shows US aluminum imports from Canada. From the end of 2019 to the present, we can see a gradual increase in aluminum imports. This increase was the result of the signed USMCA deal. However, the amount of imported aluminum in late 2020 was approximately the same as 2017. The so called “surplus” that the President Cited was to be expected and wasn’t actually an influx.
Tensions Between the Two Great Nations
There are numerous concerns regarding the fate of the USMCA, as a trade war escalation may lead to strained foreign relations. President Trump’s tariffs were announced just one month after the new USMCA trade deal came into effect and although it still is flawed in certain areas, it was far better than the NAFTA trade deal, creating more jobs for the US and stimulating more Canadian exports. The USMCA stated that the US could impose tariffs or set restrictions on the importation of aluminum if and only if there was a large surge in Canadian exports.
“The Trump administration’s capricious imposition of tariffs on aluminum is an unwarranted unilateral action that violates the spirit of the USMCA. In Canada, [the US has] a good neighbor to the north. Surely Canada deserves a good neighbor to its south,” said Jerry Haar, a professor of international business at Florida International University. (2020)
As the clock was ticking on September 15, 2019, the day that the Canadian Government was set to unveil the new retaliatory tariffs, the White House had a decision to make. In a spring of events, they renounced their original tariffs, averting a trade war that would devastate both nations.
