Hoping for an exemption from tariffs, Canada is keeping powder dry.. for now

by Peter Zimonjic & Katie Simpson (Feat. Sarah Goldfeder)

CBC News
March 6, 2018

Canada will not follow the European Union and issue specific threats to the U.S. over proposed steel and aluminum tariffs because it's still holding onto the hope that it will get an exemption from any such duties, CBC News has learned.

A federal government source with knowledge of the trade file said, however, that if the U.S. does impose the tariffs, Canada's reaction will be swift, and suggested a list of targeted actions is being considered.

Former prime minister Brian Mulroney — whose government negotiated the original North American Free Trade Agreement​ — said he agrees with the Trudeau government's policy of remaining quiet for the time being.

"I think the way they are handling it now, I think they're doing well," he said. "You don't respond to this with needless bluster. You try to keep the channels of communications open, so you can live to fight again another day."

Mulroney said that Republicans in Congress are putting "enormous pressure" on Trump to abandon the tariffs, and Canada should wait and see what happens over the next week.

Mulroney also said negotiations between Canada, the U.S. and Mexico to modernize NAFTA are tough but improving — and now is not the time to make threats.

"You never discuss publicly anything you're going to do, until you do it, if you are a responsible government," Mulroney said. "I think that I saw [Foreign Affairs Minister Chrystia Freeland] saying precisely that, and I think she's right."

Last week, the Trump administration announced it would use section 232 of the Trade Expansion Act of 1962 to impose tariffs on steel and aluminum imports on the argument that they threaten U.S. national security.

Trump said he would impose the tariffs — 25 per cent on steel and 10 per cent on aluminum — to boost U.S. manufacturers. The president also suggested that Canada might get an exemption if it agrees to a "new and fair" NAFTA deal with the U.S.

It is a position that Trump repeated Tuesday in Washington during a press conference with Swedish Prime Minister Stefan Lofven.

"If we're able to make a deal with Canada and Mexico in NAFTA, then there will be no reason to do the tariffs with Canada and Mexico," he said.

When Trump first floated the idea of imposing tariffs on steel and aluminum, President of the European Commission Jean-Claude Juncker said the EU would not sit back and do nothing.

Speaking to German television, he suggested the EU would retaliate by slapping tariffs on Harley-Davidson motorcycles, bourbon and Levi's jeans.

Targeting agriculture

And while Canada is not joining the EU in making threats, its promise to act swiftly should tariffs be imposed suggests a retaliatory strategy is in place already.

"The goal of retaliation in trade wars like this is to leverage particular congressional districts that influence the president, that influence the administration in how they're carrying out these things," said Sarah Goldfeder, a principal at Earnscliffe Strategy Group and a fellow at the Canadian Global Affairs Institute.

Goldfeder — also a former U.S. diplomat who served as special assistant to two U.S. ambassadors to Canada — suggested that the U.S. agriculture industry is likely to be targeted in any tit-for-tat trade action.

"They're going to look at agriculture districts, they're going to look at things like high fructose corn syrup, they're going to look at grain, they're going to look at dairy products," she said.