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New tariffs raise concern

A new concern about Canada's relationship with the United States is emerging in the foreground, with threats of global steel and aluminum tariffs now competing with NAFTA uncertainty as a source of economic anxiety.

It was evident during a trip to Washington for the premiers of the two biggest provinces. During their just-concluded visit, Ontario Premier Kathleen Wynne and Quebec Premier Philippe Couillard spoke with multiple state governors and none expressed the view that NAFTA faces imminent termination.

"I feel pretty encouraged by the conversations that I've had," Wynne said in an interview.

"There are a number of governors who do have a pretty direct relationship (with President Donald Trump). One of the reasons I'm very encouraged is none of them said they thought (NAFTA) was going to get cancelled."

But there's a more immediate source of angst.

Trump is weighing options for steel and aluminum tariffs. One would target the entire world, while another would hit a shorter list of countries and spare Canada. The stakes are high for Canada, which is the No. 1 seller of both products to the U.S.

They are particularly high for the premiers who just visited Washington — Ontario is a major supplier of steel and automobiles while Quebec is a key supplier of aluminum.

Canada is not yet exempted from the potential hit-list. A news report Friday from Bloomberg said Trump is actually leaning toward the most punitive action possible, which reportedly would be a 24 per cent worldwide tariff on steel and an aluminum tariff as high as 10 per cent.

The president has also been complaining lately about Canada's trade practices, in public and in private remarks.

Wynne said she spoke with her gubernatorial counterparts about her fear of what such a tariff would do to auto prices, as steel-heavy parts criss-cross the border multiple times before winding up in a finished vehicle.

"I think there's good reason to be concerned," Wynne said.

"Anybody who understands the auto supply chain understands that this would be a problem for us ... I think there is reason for real concern ... It would be a compounding effect."

The issue hasn't received a huge amount of political attention yet. The administration is giving itself until April to decide whether to use a national-security provision in American trade law to argue that foreign metals hurt America's stability, and are therefore justified targets for an emergency tariff.

Trade wonks warn that such a move could have a cascading effect, leading other countries to find similar excuses to slap retaliatory tariffs, and result in an epic clash at the World Trade Organization that threatens the international trading system.

Ohio's governor isn't sure what to make of it yet.

John Kasich says it's legitimate to set punitive tariffs if a country dumps steel produced below market cost. That's the allegation against China, and against countries that mix Chinese steel into their own supply.

But Kasich doesn't want to see his country indiscriminately using tariffs as a trade weapon.

"I'm not a protectionist ... Just slapping on tariffs, I don't agree with that," Kasich told reporters at the Canadian embassy, which was hosting U.S. state governors during their annual conference in Washington.

"(But) I don't know enough about this. I've called two people. One person who's sort of a steel expert who says this is pure protectionism. And another one who says no there's been so much dumping, that we need to do something. What's the truth? I don't know yet."

Canada's view is that it should be spared not just on economic grounds — but on the grounds of national defence.

That view received a high-profile public booster last week: U.S. Defence Secretary James Mattis.

He released a letter stating his department's position, which is that any tariffs be targeted to avoid hurting allies. Canada is not only such an ally at NATO, and NORAD — it's also one of the few countries, along with the UK and Australia, that are legally part of the U.S. military-industrial complex.

Even the history of Canadian aluminum is also deeply entwined with the U.S. military. Canada built its Bagotville air force base to protect the aluminum smelting in Quebec's Saguenay region that supplied material to the U.S. military.

The idea that these same smelting operations might now be smacked with tariffs with the justification of defending America strikes Canadian policy-makers as, at best, counter-intuitive.

"Aluminum is a strategic metal for North America," Couillard told reporters in Washington. Alf Barrios, chief executive Rio Tinto Aluminium, said in a statement: "Aluminum from Canada has long been a reliable and secure input for U.S. manufacturers — including the defence sector."

Canada's ambassador to the U.S. says those basic details offer grounds for optimism.

"We are continuing to be hopeful we aren't part of that (tariff list)," David MacNaughton said in an interview.

"Aluminum in particular is really important for the military in the United States ... I'm not worried about speculation. We're working with the administration, we're working with the industry, with unions. I think there's a general consensus that it would be very disruptive and inconsistent with the historical relationship to have tariffs on Canadian steel and aluminum."



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