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As U.S. considers auto tariffs, Canada says it is prepared for ‘any eventuality’

Blanket 25-per-cent tariffs on automobile imports to the U.S. could cause job losses of 195,000 in the U.S. over the first three years

Marie-Danielle Smith – National Post
June 12, 2018

OTTAWA — Foreign Minister Chrystia Freeland warned Tuesday that Canada is prepared for anything, even as the U.S. considers auto tariffs that experts say would lead to a full-out trade war, harming both Canadian and American businesses.

The United States imposed new tariffs on Canadian steel and aluminum less than two weeks ago on a “national security” basis. The U.S. commerce department is meanwhile a few weeks into an investigation into automobile imports on the same grounds, and in the wake of the Group of Seven summit this weekend President Donald Trump tied potential auto tariffs to his criticisms of Prime Minister Justin Trudeau’s comments that Canada wouldn’t be “pushed around” in a trade dispute.

“I think as all of you know I believe it is always unwise to venture hypothetical responses to hypothetical actions,” Freeland told reporters on Parliament Hill Tuesday. “Having said that we are aware that investigation on autos under Section 232 has been initiated. It is at the very early stages, there’s been no conclusion.”

Investigations under the rarely-used Section 232 of the U.S. Trade Expansion Act are supposed to determine whether imports “threaten to impair the national security” of the U.S., but its use by the Trump administration to impose blanket tariffs for steel and aluminum — even from countries with whom the U.S. has a highly-integrated security and defence relationship, like Canada — has been widely panned.

Freeland said Tuesday that Trudeau had raised the auto issue in his bilateral meeting with Trump on Friday at the G7 summit. Freeland also said she raised the issue with U.S. Trade Representative Robert Lighthizer, with whom she has been trying to renegotiate the North American Free Trade Agreement; with Commerce Secretary Wilbur Ross, who is in charge of the investigation; and with Secretary of State Mike Pompeo.

“So you know, it is something that we have discussed, and Canada is certainly prepared for any eventuality,” said Freeland.

Canada is preparing to impose retaliatory tariffs on American steel and aluminum at the end of the month. If the U.S. opts for auto tariffs, Ottawa will have little choice but to again respond in kind, said Toronto-based trade lawyer Lawrence Herman. “I think we’d have no choice. I mean the problem is that we’re dealing with a schoolyard bully and his henchmen,” he said. “We just can’t — as the prime minister said — we just can’t be pushed around.”

The tariffs “could really, really cause a cascading descent into an all-out trade war,” Herman added, warning that even though reciprocal auto tariffs would end up hurting both Canadians and Americans, it’s tough in this case to expect rationality. “The automotive sector is totally integrated. But you know, Trump threatened tariffs on steel and aluminum, and everybody said, ‘Oh, well, you know he’s not going to hit Canada, we’re not a security threat.’ And lo and behold, look what happened.”

“I think we should be taking (Trump’s) threat at face value and prepare for an attempt to issue tariffs,” said Flavio Volpe, president of the Automotive Parts Manufacturer’s Association. “I expect that Canada would be resolute in response — we sell the U.S. about as many cars as we buy. No one will win, we should definitely put up a fight for the parachute.”

A recent report by the Peterson Institute for International Economics found that blanket 25-per-cent tariffs on automobile imports to the U.S., including auto parts, would reduce production by 1.5 per cent and could cause job losses of 195,000 in the U.S. over the first three years, and would affect $200 billion in U.S. imports.

That’s only if the U.S. were to impose unilateral actions. If the world responded in kind, the institute estimated that production would fall by four per cent and 624,000 jobs would be lost.

Outside of the U.S., Trump’s G7 partners — the EU, Canada and Japan — would suffer the biggest hits under that scenario. The U.S. currently imports $46.6 billion, $43.3 billion and $43 billion worth of passenger cars, SUVs and minivans from from those markets respectively.

The Section 232 investigation into steel and aluminum took about 10 months. For the first two months after the tariffs’ imposition, the U.S. exempted Canada, the EU and Mexico — so Canada had about a year to prepare. No timeline has yet been attached to the auto investigation, but U.S. law requires public hearings be held before any decisions are made.

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