Trade tensions between the United States and Canada have reached new heights as Canadian exports are now targeted with sky-high tariffs. Its 35% levy already affects a majority of Canadian exports. Yet a large share of these exports continue to enjoy duty-free treatment, courtesy of the United States-Mexico-Canada Agreement (USMCA). Both countries are still left trying to figure out how these tariffs impact their economies in many ways. To start, they are zeroing in on the effect in the steel and aluminum industries.
Canada is by far the U.S.’s largest exporter of steel and aluminum. These building blocks of materials science are fundamental to creating all manner of advanced products. Steel and aluminum are hallmarks of advanced manufacturing and high-tech innovation. You can find them in home appliances, food packaging, cars and auto parts. Indeed, the U.S. is the final destination for nearly three-quarters of Canadian exports, making this economic relationship all the more essential.
These tariffs don’t impact a large number of Canadian goods entering the U.S. tariff-free, due to the specific rules laid out in the USMCA. The present environment of trade negotiations has led to some anxiety about the durability of this arrangement going forward. The U.S. imports over 11% of its goods through Canada. Top exports from Canada are crude oil, natural gas, and motor vehicles.
The imposition of a 50% levy on steel and aluminum has prompted Canada to seek a reduction or complete lifting of these tariffs in ongoing trade negotiations. On the heels of USMCA’s first anniversary, the agreement will be subject to a joint review next year. This represents a promising moment for both countries to renegotiate the agreement and alleviate some of the trade burdens.
The impact of these tariffs is starting to take shape. In fact, last year the U.S. posted a $63 billion trade deficit with Canada. This figure is a modest drop from the previous years. The U.S. continues to struggle with enormous trade deficits. It is running a staggering $295 billion trade deficit with China and a $171 billion deficit with Mexico.
There is one exception to these losses where the automotive sector is concerned. Steel dominates as the primary material found in cars. Its share of a vehicle’s overall weight is roughly 60%. In addition, car manufacturing costs are directly impacted by fluctuations in steel prices. As a result, consumers will pay more for their cars.
Michael Sposi, an economic analyst who researched for the MAP-21 legislation, highlighted the impact of stopped negotiations.
“TARIFFS ARE VERY IMPORTANT TO THE NATIONAL SECURITY, AND ECONOMY, OF THE U.S.A. Based on their egregious behavior, ALL TRADE NEGOTIATIONS WITH CANADA ARE HEREBY TERMINATED.” – Donald Trump
Doug Ford, Premier of Ontario, expressed his view on the historical relationship between Canada and the U.S., noting their shared interests.
“Trade talks could’ve resulted in the lowering of existing tariffs.” – Michael Sposi
The tariff-related trade spat will surely continue to put upward pressure on prices, especially in industries that use steel and aluminum heavily. Every day manufacturers are fighting these tariffs and trying to absorb their impact. Consumers could see increased prices for home appliances, cars, and auto parts as a result.
“Canada and the United States are friends, neighbours and allies. President Ronald Reagan knew that we are stronger together. God bless Canada and God bless the United States.” – Doug Ford
The ongoing trade spat is likely to continue affecting prices, particularly in sectors reliant on steel and aluminum. As manufacturers navigate these tariffs and their consequences, consumers may see rising costs in home appliances, cars, and auto parts.
