Canada-US breakthrough on cheap foreign steel could end tariffs

OTTAWA — Canada has finally persuaded the Trump administration it can help protect the US against a flood of cheap Chinese steel, a development that could lead to the imminent lifting of punitive metal tariffs, sources say.

Multiple sources have told The Canadian Press the US is close to lifting its 25% and 10% tariffs on Canadian steel and aluminum imports – a controversial decision imposed almost a year ago as pressure during the hard-fought renegotiation of the North American Free Trade Agreement.

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

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 – 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 the 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 in order 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.

Now, it appears Canadian negotiators have persuaded their American counterparts to accept that position – paving the way for 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.

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 between the three countries have now moved to creating “enhanced monitoring/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.”

But Ujczo said caution is warranted before getting too excited: “Trump has not approved any of the proposals. As previously reported, the US and Mexico were near resolution of the Section 232 tariffs in November 2018 only to have the president reject the deal.”

Canadian officials are “encouraged” by a pair of conversations in the past week between Trump and Trudeau, as well as the Washington meeting between Foreign Affairs Minister Chrystia Freeland and Trump trade czar Robert Lighthizer mid-week.

But sources say that after so many false starts about the possible lifting of tariffs, nothing is certain until it actually happens.

“There have been many false starts? we’ve been close before,” said another source, speaking on the condition of anonymity. “We have ramped up efforts recently.”

Trump’s decision to delay auto tariffs on Japan and Europe is generating fresh hope that there might be an end in sight to his punitive levies on Canadian steel and aluminum imports.

A US Commerce Department review found that imports of automobiles and some parts could hurt US 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.