Canada pays price to end U.S. tariffs

Quotas on aluminum

OTTAWA move on Tuesday, the U.S. removed tariffs on Canadian aluminum only hours before Canada was to retaliate with its own levies against its southern neighbour.

While Finance Minister Chrystia Freeland quickly signalled the move was a win for Canada, other observers noted that new U.S-imposed quotas on aluminum exports could trigger another round of retaliatory tariffs between the two countries.

Jesse Goldman, a lawyer at Borden Ladner Gervais, said the Canadian government's position on Tuesday could even be seen as an agreement with the U.S. to limit Canada's aluminum export market.

“It's pretty evident to me that Canada has agreed to quotas on unwrought aluminum without telling the public,” he said, adding that public intervention might be required to avoid future tariffs.

Aluminum has been a nagging trade dispute between the two countries for years, with the Trump administration charging that Canada is “dumping” large volumes of steel and aluminum products in the U.S., which have in turn depressed prices.

On Tuesday, U.S. Trade Representative Robert Lighthizer announced he would remove tariffs on Canadian aluminum under the condition that imports not exceed new thresholds.

The announcement came hours before Freeland was set to unveil levies totalling roughly $3.6 billion, which were crafted in retaliation against Trump administration tariffs imposed in August. Ottawa then cancelled those planned tariffs.

Freeland took a seemingly contradictory position on the U.S. move on Tuesday, claiming that “Canada does not accept quotas” while also dropping her own set of tariffs against the country.

The finance minister sought to frame the U.S. decision as a win for Canada, and said Ottawa would maintain an “extremely simple and extremely clear” posture toward the Trump administration on trade, retaliating with tit-for-tat tariffs when it is deemed necessary.

But observers say the new thresholds set by the U.S. fall well below monthly trade, which could kneecap Canadian manufacturers and kick off a new round of uncertainty for the industry.

Data from the U.S. Census Bureau show that U.S. imports of Canadian non-alloyed, unwrought aluminum totalled 190,000 tonnes in June, 184,000 tonnes in May and 160,000 tonnes in April.

The new limits set by Lighthizer, by comparison, are less than half of that total, capped at either 70,000 tonnes or 83,000 tonnes per month, over the next four months. If Canada exceeds those thresholds by just five per cent, U.S. officials will retroactively slap 10-percent tariffs on all unwrought aluminum for the entire month, according to Lighthizer’s statement.

“If you look at traditional imports of the specific product category that these tariffs are dealing with right now, it is definitely on the low side of what historically has been imported,” said Matt Meenan of the U.S. Aluminum Association.

Meenan also stressed that the specific details of the quota have yet to be released, and could include certain exemptions that allow Canada to remain well below the new quotas. The caps will be implemented by executive order, which some expect to see sometime this week.

The Canadian Chamber of Commerce applauded the decision to drop tariffs, but warned that U.S.-imposed quotas would only create further uncertainty for manufacturers.

“We’re in a pretty good spot at the moment,” said

Mark Agnew, director of international policy at the Chamber of Commerce. “But at the end of the day, this does constrain future market forces to a degree.”

The U.S. Aluminum Association, which represents aluminum giants Rio Tinto and Alcoa, and many small firms, was broadly opposed to the Trump tariffs, claiming they would raise inputs for downstream manufacturers and increase costs to consumers.

Other Canadian trade and business groups were equally opposed to the levies, claiming U.S. officials had inflated claims about how much aluminum Canada has been exporting into America.

In recent months, Trump tariffs targeted a certain type of unwrought aluminum, sometimes categorized as P1020, after supplies of the product surged early in the COVID-19 pandemic. When demand for finished aluminum products like cans or bolts decreases, manufacturers tend to shift toward production of raw, non-alloyed products because they are more easily stored.

Several market observers who spoke to National Post said that supply of unwrought aluminum is likely to begin falling again as supply chains are reopened and as economies begin to recover.

In a statement Tuesday, Lighthizer said the U.S. now expects that trade of non-alloyed aluminum “is likely to normalize in the last four months of 2020, with imports declining sharply from the surges experienced earlier in the year.”

He said the U.S. “will consult with the Canadian government at the end of the year to review the state of the aluminum trade,” and would again level tariffs against Canadian products if aluminum imports surpass a certain threshold.

Trump has in the past targeted Canadian steel and aluminum in speeches and rallies, and could use the new set of quotas during his election campaign.