UPDATE: Steel and aluminum tariffs are lifted

OTTAWA — Canada’s year-long standoff with the Trump administration over punitive US steel and aluminum tariffs is finally over, removing a key hurdle in efforts to ratify the new North American trade pact.

Global Affairs Canada says the tariffs will be removed within two days.

Canada has also agreed to drop all of its retaliatory measures and legal actions at the World Trade Organization.

Prime Minister Justin Trudeau is making an unscheduled, last-minute trip to Hamilton, Canada’s steel-manufacturing capital, where he’s expected to confirm the breakthrough at an event at steel giant Stelco with Foreign Affairs Minister Chrystia Freeland and Finance Minister Bill Morneau.

Word of the agreement began to trickle out amid reports that US negotiators had backed off long-standing demands for a hard limit on imports of Canadian steel and aluminum, part of an effort to keep cheap Chinese product out of the country.

Late in the morning on May 17, President Donald Trump and Trudeau wrapped up their third phone call in less than a week on the tariff dispute, which includes Canada’s decision to retaliate with more than $16 billion of its own punitive levies on American products.

“The two leaders discussed the United States’ Section 232 tariffs on steel and aluminum and Canada’s retaliatory tariffs,” the Prime Minister’s Office said in a readout of the call.

They “also discussed relations with China, uranium, and the new NAFTA.”

One year ago, Commerce Secretary Wilbur Ross said the tariffs on Canada, as well as Mexico, were necessary to prevent a flood of cheap Chinese steel into the US through its NAFTA partner countries.

Ross also said the US was imposing tariffs on Canada and Mexico because the trade talks were taking too long, even though they were ostensibly imposed under a section of American trade law that gives the president that authority to do that to protect national security.

The Trudeau government has branded the tariffs as illegal, absurd and insulting, while Canada and Mexico say that it will be tough to ratify the new continental free trade agreement – the United States-Mexico-Canada Agreement, or USMCA – if they remain in place.

Ottawa has also been working to demonstrate to Washington that it has taken steps to stem the flow of cheaper Chinese metals into Canada.

But Canada has stood firm with the US on one key, related point: it has steadfastly refused to agree to quotas or other limits on its exports to get the tariffs lifted.

Canadian sources have described the idea of a quota system as a non-starter and a concession that Canada was not prepared to make.

The agreement says the US and Canada will establish a process for monitoring steel and aluminum trade between them.

“In the event that imports of steel or aluminum products surge meaningfully beyond historic volumes of trade over a period of time, with consideration of market share, the importing country may request consultations with the exporting country. After such consultations, the importing party may impose duties of 25% for steel and 10% for aluminum,”says the agreement.

Canadian negotiators persuaded their American counterparts to accept that position – a compromise that could allow the Trump administration to holster one of its favourite new trade weapons, while claiming to have enlisted the help of an ally in its ongoing fight.

“We have always said we are not the problem and that USMCA wouldn’t pass as long as the tariffs were in place. We would never accept a hard quota. I think they finally heard us,” said one source, speaking on the condition of anonymity, citing the delicate new phase of the negotiations.

“Now we can work together to deal with overproduction outside of North America and approve the improved free-trade deal.”

Dan Ujczo, a trade lawyer and Canada-US specialist in Columbus, Ohio, said he believes the US has “moved off of its demand for a hard quota, which is a key factor in the new optimism.”

The discussions among the three countries have now moved to creating “enhanced monitoring” and “anti-circumvention measures” relating to non-North American steel imports.

The three countries are also considering strict new rules of origin for steel and aluminum, said Ujczo.

“Companies that rely on non-North American steel and aluminum in their NAFTA/USMCA region supply chains are highly likely to be impacted by these discussions,” he said.

“While companies may celebrate a top-line without a hard quota, the devilment will be in the details.”

A US Commerce Department review found that imports of vehicles and some auto parts could hurt U.S. national security, but Trump decided to wait 180 days before imposing tariffs and ordered new talks to deal with the issue.

The Commerce Department reached the same conclusion about Canadian and Mexican steel and aluminum imports almost one year ago.