Canada Considers New Retaliatory Tariffs on U.S. Agricultural Products

New retaliatory tariffs by Canada on U.S. products including agricultural ones may soon be on the way.

David MacNaughton, Canada's ambassador to the U.S., told members of the North American Agricultural Journalists (NAAJ) at this week's annual NAAJ meeting in Washington, D.C., that the proposed retaliatory tariffs are in response to the U.S. using Section 232 of the Trade Expansion Act of 1962 that place tariffs on steel and aluminum for national security reasons. These were instituted during negotiations of the United States-Mexico-Canada Agreement (USMCA) trade agreement. This agreement between the U.S., Mexico, and Canada to replace the North American Free Trade Agreement has been signed but not yet ratified between the three nations.

"When the U.S. imposed (steel and aluminum) tariffs, we said we could put in corresponding tariffs – dollar for dollar – in retaliation of unjustified and illegal tariffs," says MacNaughton. "Our position is that the tariffs are unjustified and illegal and should go."

U.S. agricultural products on which Canada may add tariffs include apples, pork, and ethanol. During a 45-day consultation period, Canada would determine which would have the least impact on Canadian consumers and the most impact on the U.S.

"That's what retaliation is designed to do," says MacNaughton. "I indicated to Ambassador (Robert) Lighthizer (U.S. trade representative) and anyone else in the administration, and quite a number of people including members of Congress, that we are prepared to sit down today, tomorrow, the day after, next week, any time to try and resolve this matter. What I would rather talk about other than the retaliation list is the positive nature of USMCA. I think it is significant improvement over the existing agreement. It creates more opportunity in the agricultural sector."

If successful negotiations do not soon occur, though, MacNaughton says the matter will not be resolved before Canada's election this October.

"If it is unresolved and Section 232 tariffs are in place, the discussion about our relationship with the United States of America will be central part of the campaign, and it will not be a positive discussion," says MacNaughton.

McNaughton questions the reasoning behind the implementation of steel and aluminum tariffs.

"The stated purpose of these tariffs was to curb overproduction by China," he says. "We aren't part of the problem."

McNaughton also questioned the effectiveness that the tariffs have had upon the U.S.

"In 15 of the last 16 years, the U.S. had a (trade) surplus with Canada in steel products. The only year the U.S. has not had a trade surplus was last year, when U.S. exports of steel (to Canada) fell by $800 million. My question is, how is that program working for you so far?"

The same principle applied to aluminum, MacNaughton says. "If all of the aluminum smokers in the U.S. came back, the maximum aluminum that could be produced would be 25% of your needs. Therefore, you will have to import 75% of your aluminum. So the question is: Where do you want it to come from? If you put quotas on Canada, more product will come from other places like Russia, China, and Kazakhstan. How does that enhance U.S. national security?"

Interesting Dichotomy

MacNaughton says the trading relationship between Canada and the U.S. is the largest in the world. "We are the largest market for the U.S., larger than China and Great Britain combined," he says.

Still, trade relationships between the U.S. and Canada have had an interesting dichotomy since the since the Trump administration came to power in January 2017, MacNaughton says.

"On one hand, the personal relationships with this administration have been as great as in any administration for some time. (USDA) Secretary (Sonny) Perdue, I consider him a friend. He and his wife have been over to our house for dinner."

On the other hand, though, MacNaughton says the Trump administration views disruption as part of its negotiating style.

"It is a mystery to me how on one hand, they come to us and say, 'Can you help us with Venezuela? Can you help us on Iran sanctions?' and on and on and on. And at that same time, they take the position after (USMCA) negotiations ended, that the president (Trump) described as 'the best deal in history,' that these tariffs remain in place. It is that kind of thing that is causing a real sort of irritation and befuddlement in Canada."

McNaughton says it's important the U.S. and Canada resolve these differences and form a stronger relationship.

"We want it stronger because we face international threats that are unprecedented," he says. "If our two countries don't get along, what does that say to the rest of the world?"