The Trump administration has threatened to impose tariffs on aluminum coming from Canada — a move that was used just last year as leverage to negotiate the new NAFTA agreement, or the U.S.-Mexico-Canada Agreement (USMCA) as it is known in the U.S.
That agreement came into effect on July 1 (Canada Day), so there is no trade deal to negotiate this time around.
Oumar Dicko, Chief Economist at the Canadian Automobile Dealers Association (CADA), said the threat is a “very serious” concern for the association and the auto sector, as it was detrimental to the sectors that rely on steel and aluminum when it was first imposed in 2019. But it looks as though the brunt of such a tariff would fall on the U.S.
“At the same time, a tariff on aluminum will particularly hurt the U.S. economy,” said Dicko. “We hope the Canadian government can take that issue very seriously and work with the United States trade officials to ensure that the tariffs are not brought back, and ensure there is a good flow of steel and aluminum between Canada and the United States.”
Asked why the Trump administration would threaten to impose such a tariff if the impact will be felt more on the U.S. side, Dicko said he preferred not to speculate on the rationale of the U.S. government, but did consider the possibility that it is part of Donald Trump’s protectionist agenda.
“I think it’s all in the same vein of protectionism that we saw coming out of the White House over the last couple of years,” said Dicko. “I really hope that, now that we have signed the USMCA and it took effect on July 1, that the U.S. will live up to the spirit and intent of the deal and ensure that the deal provides more certainty to the North American market and economy.”
The new NAFTA agreement comes at a difficult time for automakers due to the pandemic. Many only recently restarted production and are ramping things up, though concerns over COVID-19 and safety measures remain among workers, according to reports from the Detroit Free Press. The news outlet also reported on issues related to the rules of the agreement being revealed quite late.
Still, Dicko said the deal is good for all three countries involved, a good deal for the automotive sectors, and that it brings back certainty in the North American market and economy — particularly at this time of the global pandemic and the economic repercussions that all countries have experienced over the last several months.
“That being said, the deal has come with new rules and requirements, particularly the rules of origin and some of the new labels, which will likely cause a bit of disruptions over the next couple of months while the manufacturers and many sectors adjust to these new rules,” said Dicko.
According to the Government of Canada, North American auto content will rise to 75 per cent from 62.5 per cent within the next several years. And based on the Office of the United States Trade Representative, OEMs must produce 40-45 per cent of the content for the vehicle in areas where workers are earning at least US$16 per hour — which implies the U.S. and Canada as the U.S. seeks to shift more jobs back to its country.
Dicko does not foresee a difficult transition but is anticipating that, as industries and sectors adjust to the new rules, there may be some disruptions in the market while everyone makes the transition.
