U.S. Tariffs Hit Canada, Mexico as Ross Laments Nafta Talks
(Bloomberg) -- The U.S. decision to proceed with steel and aluminum tariffs adds a new wrinkle to one of its other most pressing trade files: Nafta talks with Canada and Mexico.
The countries are major U.S. steel and aluminum suppliers and both considered the threat of tariffs to be an irritant at best, an insult at worst. They have also said they would have to respond, raising the prospect of retaliatory penalties.
U.S. Commerce Secretary Wilbur Ross, in announcing the tariffs, said Nafta talks are “taking longer than we had hoped” to wrap up. “The status to which they got did not justify continuing exemption from the tariffs based on the national security considerations of the overall situation,” he said.
Nafta talks continue, with a deal needed probably within days to have any hope of passing the current U.S. congress and with Mexican elections one month away. Canada’s trade minister said Thursday the two issues are “separate tracks,” but the tariffs and any retaliation will nonetheless further stress talks -- Mexico has already announced it will impose tariffs on U.S. steel, pork, apples and other projects.
“The decision to impose tariffs on Canada and Mexico suggests that prospects for a NAFTA agreement in the near-term are fading,” Goldman Sachs analyst Alec Phillips said in a note Thursday. “The administration’s negotiating stance is often unpredictable so there is a risk of over-interpreting any single event.”
The U.S. wanted a Nafta deal passed under this Congress, but that window is closing. U.S. House Speaker Paul Ryan said the deadline to receive a notice of intent to sign a deal was May 17, and then said there may be a couple of weeks of wiggle room, placing the deadline around now. “There is no longer a very precise date when they will be concluded,” Ross said Thursday.
Flavio Volpe, president of the Canadian Automotive Parts Manufacturers’ Association, said it will hurt Nafta talks. “I can’t see how treating your deepest trading relationships with acute disregard is going to be treated as anything but bad faith at the Nafta table,” he said.
Canada and Mexico say the tariffs are distinct from trade talks and it’s absurd to consider allies, particularly Canada, a national security threat. Talks will continue, Ross said, and the president could unilaterally decrease tariffs also. “The fact that we took a tariff action does not mean that we cannot have trade negotiations. They are not mutually exclusive behaviors,” he said.
U.S. Commerce Department data show Canada is the top source of U.S. imports of steel and aluminum, while Mexico is the U.S.’s fourth-largest provider of steel and 10th-largest of aluminum.
“The decision to impose tariffs is unexpected and unfortunate in the case of Canada and Mexico,” said Bill Reinsch, senior adviser at the Washington-based Center for Strategic and International Studies. The tariffs will lead to retaliation and market turmoil, he said. “Good faith negotiations have been underway, and there is no reason to disrupt them.”
‘God Help Us’
Canadian Foreign Minister Chrystia Freeland had downplayed the Nafta deadline pressure, saying Wednesday it will “take as long as it takes to get a good deal.” If Canada was hit by “frankly absurd” steel and aluminum tariffs, “we will respond appropriately,” she said.
Mexican Economy Minister Ildefonso Guajardo said in April the country will “have to react if any measure is imposed.” They did so within minutes of the U.S. announcement on Thursday.
Rufus Yerxa, president of the National Foreign Trade Council in Washington, said the steel and aluminum decision would have much broader implications for the international trading system.
“Trump has apparently decided to dismantle the existing order on trade. History will now be the judge of his actions,” Yerxa said. “If he’s right, he’ll be vindicated. If he’s wrong, God help us all.”
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