Trump's Tariffs Test Canadian Trade Strategy

The Trump administration recently imposed tariffs on Canadian softwood lumber and re-imposed duties on Canadian aluminum. These actions follow earlier warnings from Bank of England Governor Mark Carney regarding the increasing use of economic coercion on the international stage.

Carney, who previously served as Governor of the Bank of Canada, articulated his concerns about economic coercion in a 2019 speech. He specifically identified practices such as tariffs, sanctions, and export restrictions as potential tools for such pressure. He also highlighted the particular vulnerability of countries with open economies to these types of measures.

The United States initially imposed a 10% tariff on Canadian aluminum imports in 2018. The administration removed these tariffs in 2019, citing a reduction in aluminum shipments. However, on August 6, 2020, President Donald Trump announced the reinstatement of the 10% tariff on certain Canadian aluminum products. He stated that Canada had not upheld its commitment to reduce aluminum exports to the U.S. Canadian Deputy Prime Minister Chrystia Freeland stated that Canada had no such agreement.

Canada responded to the re-imposed aluminum tariffs by announcing its intention to implement retaliatory tariffs on various U.S. goods. Freeland indicated that Canada would release a list of U.S. products to be targeted. She also stated that Canada did not escalate disputes but would respond proportionately when challenged.

Separately, the U.S. Department of Commerce reduced tariffs on Canadian softwood lumber from 20% to 9% in November 2020. This decision followed a review of duties first imposed in 2017. The Canadian government had consistently argued that these tariffs were unfounded and harmed consumers in both countries.

These trade disputes occur as the new United States-Mexico-Canada Agreement (USMCA) took effect on July 1, 2020. The agreement replaced the North American Free Trade Agreement (NAFTA) and aimed to modernize trade relations among the three countries. The ongoing tariff disputes test the framework of this new trade deal and the broader economic relationship between the United States and Canada.