Trade war erupts as Ottawa plans levies against U.S.

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Canada is firing back against punitive U.S. steel and aluminum tariffs as part of what is becoming a full-fledged global trade war, with the Trudeau government announcing it will retaliate against American protectionist actions on a “dollar for dollar” basis.

This followed news from the White House that the United States will slap tariffs of 25 per cent on Canadian steel and 10 per cent on Canadian aluminum starting Friday after the Trump administration removed an exemption sparing Canada and the European Union from these global measures first announced earlier this year. U.S. Commerce Secretary Wilbur Ross blamed this move on a lack of progress in North American free-trade renegotiations with Canada and Mexico.

Read the list of products subject to tariffs

Prime Minister Justin Trudeau said Canada will respond by slapping levies on $16.6-billion of U.S. imports starting July 1, saying the action taken by the Trump administration is “an affront to the long-standing security partnership” between Canada and the United States.

“This is the strongest trade action Canada has taken in the postwar era,” Foreign Affairs Minister Chrystia Freeland said.

The Canadian countermeasures came shortly after the EU and Mexico announced similar retaliatory measures against U.S. imports and decried the White House’s decision. “Today is a bad day for world trade,” EU trade commissioner Cecilia Malmstrom said. “We did everything to avoid this outcome.”

The protectionist attack from Donald Trump – and Mr. Trudeau’s pushback – ignites the most serious trade war between Canada and its largest trading partner in decades, as the nationalistic U.S. President threatens to undo the globalized free-trade order his country worked generations to build.

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Canada’s proposed target list of American products includes U.S. steel and aluminum as well a slew of goods from sailboats to whisky, plywood to refrigerators, and washing machines to herbicides.

The list has been drawn up to exert maximum political pressure on the congressional districts of U.S. lawmakers by hitting products from their regions, a Canadian official said. The list skews more Republican than Democrat in its design, reflecting Republican dominance in Washington.

Mr. Trump has justified his tariffs on foreign steel and aluminum by saying, controversially, that they were necessary to ensure American “national security” because they would expand the U.S. capacity to construct its own tanks and warships.

Ms. Freeland called this rationale “absurd” and Mr. Trudeau said the notion that “Canada could be considered a national-security threat to the United States is inconceivable” to him.

“For 150 years, Canada has been America’s most steadfast ally … From the beaches of Normandy to the mountains of Afghanistan, we have fought and died together,” Mr. Trudeau said. “We came to America’s aid after 9/11 … We are fighting together against Daesh [the Islamic State] in northern Iraq.”

The proposed Canadian retaliation will impose a 25-per-cent levy on more than 40 categories of U.S. steel imports. The remainder of targeted goods – more than 80 categories including aluminum – will face a 10-per-cent levy. Ottawa will consult on this list for 15 days before finalizing it.

Canada will also challenge the U.S. tariffs at the World Trade Organization in concert with other countries and will file a complaint under NAFTA rules as well.

The Trudeau government would not say how it will spend the revenue it collects from the tariffs or whether it will distribute some of the money to the Canadian steel and aluminum industries.

“That discussion [about tariff revenue] will come later,” Finance Minister Bill Morneau said.

He said for now the Canadian government wanted “to send an absolute message, a message that these tariffs don’t … make sense economically. They hurt Canadians. They hurt Americans.”

Mr. Ross sounded a negative note on the NAFTA renegotiations, suggesting they were stalled. “The talks are taking longer than we had hoped. There is no longer a very precise date as to when they will be concluded.”

Mr. Trudeau told reporters Thursday he tried to schedule a White House meeting with Mr. Trump and Mexican President Enrique Pena Nieto to close a deal on NAFTA this week. But the sit-down was scrapped after the United States demanded Mr. Trudeau agree to a sunset clause, a provision that would automatically terminate the deal in five years unless all three countries agreed to extend it, as a condition of the summit.

Mr. Trudeau said he pitched Mr. Trump on the meeting during a phone call last Friday. The U.S. President was receptive, Mr. Trudeau said.

“I stated that I thought we were quite close to reaching an agreement, and perhaps the time had come for me to sit down with the President in Washington in order to finalize the NAFTA agreement,” Mr. Trudeau said.

The Prime Minister was aiming to come to Washington on Wednesday, said one source with knowledge of the planning, a day after Foreign Minister Chrystia Freeland made a last-minute pitch of her own to U.S. Trade Representative Robert Lighthizer in the U.S. capital in a bid to avoid the tariffs.

But on Tuesday, Vice-President Mike Pence called Mr. Trudeau to demand that he agree to insert a sunset clause into NAFTA. Without Mr. Trudeau’s concession on the matter, Mr. Pence told him, there would be no meeting.

“I answered that, unfortunately, if that was a precondition to our visit, I was unable to accept,” Mr. Trudeau told reporters.

The source said that the sunset-clause demand appeared to be something of a ploy: The administration wanted to scuttle the meeting and go ahead with tariffs, so it made a demand they knew Mr. Trudeau would refuse.

The White House’s tariffs were criticized in Canada on Thursday.

The U.S. levies “place Canadian producers at an unfair competitive disadvantage in our largest export market, undermine our shared North American competitiveness in steel and do nothing to advance the national security of the United States of America,” Joseph Galimberti, president of the Canadian Steel Producers Association said in a statement.

News of the U.S. tariffs on Canadian, European and Mexican goods emerged just as key leaders from the Group of Seven most developed countries addressed a panel in Whistler, B.C., where finance ministers, development ministers and central bankers are gathered for a summit.

International Monetary Fund director Christine Lagarde lashed out Thursday at the U.S. decision. “If trade is massively disrupted … those who will suffer most are the poorest,” she warned.

In an interview, Jean Simard, chief executive officer of the Aluminium Association of Canada (AAC), said it makes no sense for the United States to impose tariffs on Canada given how much its own economy relies on imports of Canadian supplies.

Veteran Canadian trade lawyer Lawrence Herman called the U.S. action “a destructively bad-faith move on the part of Trump and his White House, bringing Canada-U.S. relations to an historic low,” and one that “almost certainly torpedoes NAFTA negotiations.”

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The U.S. tariffs would have no impact on Mr. Trump’s stated economic goal of eliminating the U.S. trade deficit. The United States has a US$2-billion surplus in steel trade with Canada – and Canada buys more American steel than any other country in the world. Canada is also a secure supplier of aluminum and steel to the U.S. defence industry.

Mr. Trump faced an outcry at home against the tariffs from business figures and trade-friendly politicians.

Nebraska Senator Ben Sasse, whose state depends heavily on corn and soy exports to Mexico, blasted Mr. Trump for mistreating U.S. allies and warned of dire economic consequences.

“This is dumb. Europe, Canada, and Mexico are not China, and you don’t treat allies the same way you treat opponents,” said Mr. Sasse, a Republican, in a statement.