WASHINGTON, D.C. — Canadians are tiring of Donald Trump’s favourite word, “tariffs,” but they may need to brace for even more of them.
Last month, the United States Trade Representative (USTR) launched investigations into 60 economies, including Canada, under Section 301(b) of the Trade Act of 1974 to determine whether they have failed to impose and enforce a ban on imports produced with forced labour.
Canada is being lumped together with China and dozens of other countries for an investigation into whether Ottawa’s forced-labour rules and framework are sufficient for screening goods tied to forced or child labour. Hearings over this are being held this week in Washington, and trade watchers expect actions to be taken against most of the countries in question.
The resulting duties could help rebuild Trump’s tariff wall, constructed last year under the International Emergency Economic Powers Act but torn down by the U.S. Supreme Court in February.
Prime Minister Mark Carney has expressed frustration with U.S. tariffs, labeling them violations of the Canada-U.S.-Mexico Agreement (CUSMA).
“You know what’s an irritant?” he said last Thursday. “A 50 per cent tariff on steel and aluminum, 25 per cent on automobiles, all of the tariffs on forest products. Those are more than irritants. Those are violations of our trade deal.”
Carney was referring specifically to Section 232 tariffs on those products, most of which were put in place last year. The IEEPA tariffs and their temporary replacement in the form of Section 122 tariffs, meanwhile, have contained exemptions, meaning that CUSMA-compliant goods have thus far escaped those duties.
The prime minister also responded to the launch of the 301 probe by defending Canada’s anti-forced labour laws.
“Canada has a comprehensive legal framework around that …. and we take it very seriously,” he said.
Nonetheless, trade watchers in Washington expect Canada to be faced with 301 tariffs following the investigation.
“They’re probably going to use that as the basis for creating a new baseline tariff,” said Inu Manak, senior fellow for international trade at the Council on Foreign Relations. “So that’s sort of replicating the tariff wall that came with IEEPA, and then also using the Section 301 to enforce commitments that are made in other agreements.”
“The outcome of those 301s is already well-known: We’re expecting tariffs, regardless of what the investigation shows,” she added.
So if we can assume that the 301s will lead to duties, the bigger question may be whether the duties will impact Canada’s trade more broadly than the IEEPA or the Section 122 tariffs — namely by including CUSMA-compliant products.
Manak and some other trade watchers point to last year’s carveouts as signals that the White House understands how devastating tariffing all of Canada’s trade would be to the U.S. economy — and they assume any 301 tariffs will carry CUSMA exemptions.
“I would think they would …,” Manak said, and “particularly if we’re in the middle of negotiations and it seems like things are going the right way.”
“I don’t think they would actually (tariff all goods) unless there was something significant that changed their minds.”
Alfredo Carrillo Obregon, policy analyst at the Cato Institute, believes that carveouts are more likely the broader the tariff is because Washington will want to protect its own economy.
“I think that the U.S. recognizes that tariffing everything that comes in from Mexico and Canada is against its own economic interest,” he said, but he acknowledged that it was “still too early to tell.”
He reckons that it will depend on how the investigations play out and where things stand with the CUSMA negotiations.
“If there’s major progress in (the 301s) as we head into summer, they’re going to be used as leverage in USMCA negotiations,” Carrillo Obregon said.
But others see carveouts for CUSMA-compliant goods as less likely.
“Rather than having the same type of duty-free approach that has been the core of NAFTA and USMCA,” said Arun Venkataraman, international trade partner at law firm Covington & Burling, “I think there are probably questions as to whether that needs to be revisited, certainly from the U.S. perspective.”
He said the exemptions offered under IEEPA and Section 122 should not be seen as a reliable guide for how the U.S. will approach tariffs in USMCA negotiations.
Diego Marroquín Bitar, fellow at the Washington-based Center for Strategic and International Studies, pointed to reporting that USTR Jamieson Greer recently told the Mexican private sector that if CUSMA is extended, there will be some tariffs on top of it.
Marroquín expressed concern that U.S. tariffs imposed even on USMCA-compliant goods would further undermine the agreement’s credibility and raise North American production costs.
“An agreement that’s supposed to reduce barriers to trade is less credible if you have something on top of it that’s making us less competitive, that’s making production more expensive, that’s changing the incentives to comply with the agreement,” he said.
Worryingly, business and politicos have largely assumed any 301s will lead to carveouts for goods covered under the trade agreement. But Jamie Tronnes, executive director of the Center for North American Prosperity and Security, a project of the Macdonald-Laurier Institute, says it has not escaped Ottawa’s notice.
“There is growing fear that the United States will use the 301 tariffs as leverage or as a way to get out of the tariff-free trade that Canada and the United States have established through USMCA,” she said.
Canada’s been walking a fine line on this for longer than many people have realized, Tronnes added, but now, she says, “I think most trade watchers are starting to become a little more concerned about the 301s than they are about the actual renewal of the USMCA.”
Even more worrying, she said, is the possibility of stacked tariffs.
“Any sector that has already received 232 tariffs is probably even more vulnerable because these (301s) could be stacked tariffs, which would make the tariff rate even higher,” she warned, noting how the auto sector is already reeling.
“If USMCA-compliant parts and other USMCA-compliant goods go by the wayside,” Tronnes warned, “then we’re looking at a major shift in how we trade with the United States.”
National Post
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