With Renewed Nafta Deal, Trump Opens Door to Metal Tariff Accord

(Bloomberg) -- With a Nafta deal on the table -- and a bullet dodged for the auto sector -- the clock is ticking for the next key trade talks for Canada’s steel and aluminum industries.

After a marathon weekend of discussions, negotiators secured a deal to replace the 24-year-old Nafta agreement just before a midnight deadline on Sunday. However, the steel and aluminum tariffs that U.S. President Donald Trump imposed on Canada and Mexico will be dealt with separately.

Canada and Mexico will push to resolve the metal tariffs over the next two months, leading up to the signing of the new USMCA deal, three people familiar with talks said, speaking on condition of anonymity. Mexico’s economy minister has said the country hopes to resolve the steel and aluminum tariffs before the USMCA is signed.

“If I were Canada, I would use the next 60 days, leading to the final signing of the agreement to get this exemption because after that we lose all our leverage,” Jean Simard, chief executive officer of the Aluminium Association of Canada, said by telephone. “We certainly are pleased to see that there was an agreement over the weekend but, at the same time, we’re very disappointed that current U.S. tariffs on aluminum imports from Canada haven’t been lifted.”

Trump, Quotas

Trump’s so-called “232 tariffs” were named for Section 232 of the Trade Expansion Act of 1962 and allow the U.S. president to restrict imports for national security. Canada has responded with its own tariffs. One side letter that’s part of the new trade deal allows for 60 days of negotiations in order to “adopt or maintain” any 232 tariff, though it was unclear when, or if, that would kick in for steel and aluminum.

Speaking at the White House Monday, Trump said the steel and aluminum tariffs remain in place, but opened the door to an agreement where the countries agree to quotas.

Tariffs remain “until such time as we can do something that would be different, like quotas, perhaps, so that our industry is protected,” Trump said. “We are working on that now, that wasn’t part of this.”

U.S. Trade Representative Robert Lighthizer said the sides are in talks now “with an effort to try preserving the effect of our program and still take care of their needs. Hopefully we’ll be able to work that out.”

‘Priority for Us’

Talks on the metal tariffs will begin this week, Juan Pablo Castanon, head of the Mexican business chamber known as CCE, told reporters Monday on a conference call. He expressed hope that an announcement regarding the tariffs could come this week.

Canadian Prime Minister Justin Trudeau said he would continue to press for the lifting of the tariffs.

“We also recognize that moving forward on eliminating the tariffs on steel and aluminum remains a priority for us, for Mexico, and is something the Americans have indicated they’re more than willing to work on,” Trudeau said in a news conference in Ottawa.

Eighty-four percent of aluminum produced in Canada, or 2.5 million metric tons, is exported to the U.S. each year, meaning the 10 percent tariff imposed by the Trump administration poses a significant threat to the Canadian industry. Canada exports a smaller percentage of steel but the tariff is higher at 25 percent.

‘Concerned’ Producer

Alcoa Corp., a U.S. aluminum producer with smelters in Canada, said it was “disappointed” there was no resolution to the Section 232 tariffs on aluminum. “We continue to call for a full exemption for Canada and our fair trading partners,” spokeswoman Monica Orbe said in an emailed statement.

London-based Rio Tinto Group, which also produces aluminum in Canada, said it was “concerned” the proposed agreement doesn’t lift the tariffs on the lightweight metal.

“We will continue to engage with U.S. and Canadian officials to seek a resolution of the tariffs on aluminum prior to final approval of the new agreement,” Rio said in a statement.

Meanwhile, the tariffs on steel have discouraged Canadian importers from committing to supply contracts, resulting in shortages in some steel products and hurting the construction industry. On the other side of the border, the benchmark price of steel has climbed 31 percent, helping boost margins for U.S. steelmakers.

The industry did receive some good news from the new trade pact, in the form of relief for the auto sector. Canada will be allowed to export as many as 2.6 million autos before any U.S. tariffs on foreign cars kick in -- effectively an exemption.

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