What Security Threat?

Perhaps you feel more secure today, knowing that steel and aluminum that’s imported to the U.S. from Canada and Mexico will be subject to tariffs.

But does security really have anything to do with it? Apparently U.S. Secretary of Commerce Wilbur Ross thought so, as he and his team recommended the tariffs after a Section 232 investigation into steel and aluminum imports. The stated objective of the tariffs – “increasing demand for American-made metals” – certainly doesn’t sound like a security issue.

Regardless, President Trump followed Ross’ recommendation, but rounded up, slapping a 25% tariff (vs. Ross’ recommendation of 24%) on steel and a 10% tariff (vs. 7.7%) on aluminum from any country.

We’re kind of glad that President Trump isn’t our neighbor. Canada and Mexico, which became two of the country’s strongest trading partners after the negotiation of the North American Free Trade Agreement (NAFTA) 24 years ago, are among the biggest importers of steel to the U.S.

Canada supplies 16% of American steel and Mexico supplies 9%. Canada, meanwhile, purchases 50% of U.S. steel exports, so you would think that even steel companies would oppose tariffs, which will undoubtedly harm their ability to export.

In comparison, countries that do threaten our security account for only a small percentage of imported steel. Only 2.2% of steel imported to the U.S. comes from China, while Russia accounts for 8.7%.

“Mr. Trump is punishing our most important trading partner in the middle of a Nafta renegotiation that he claims will result in a much better deal,” according to The Wall Street Journal. “Instead he is taking a machete to America’s trade credibility. Why should Canada believe a word he says?”

At first it was our southern neighbor that took the most abuse, including the president’s pledge to build a wall along the border – and expecting Mexico to pay for it.

More recently, Canada has drawn President Trump’s ire, as it is taking a hard line in NAFTA negotiations.

“While Trump said last year he was seeking to just tweak trade ties with Canada — and Mexico looked like the main target of a revamp — the positions have shifted,” Bloomberg reported. “Growing tensions were evident at the close of round-six of NAFTA talks … in Montreal when U.S. Trade Representative Robert Lighthizer lashed out at Canada for filing a sweeping trade case against America at the World Trade Organization in January.”

In addition, Lighthizer revived debate between the two countries about trade-gap statistics and called Canada’s ideas for new auto-content requirements too vague and “rowing in the opposite direction of the U.S.’s needs.”

“Trudeau’s comments … could ratchet up pressures and remind the U.S. that Canada — America’s largest export market — is thinking about life after NAFTA if the negotiations collapse,” Bloomberg concluded.

Bipan Rai, a Toronto-based foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce, said Trudeau was just clarifying that Canada is looking out for its own interests and, “There is still a strong willingness on the Canadian side to get a deal done, but not one that would hurt domestic prospects.”

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