Canadian Finance Minister Bill Morneau has launched a quickfire 15-day consultation on the impact of US tariffs on the Canadian steel industry. Steelmakers are already feeling the impact as cheaper foreign steel that would previously have gone to the US is diverted to Canada. It seems inevitable that the consultation will produce evidence of mounting damage, in which case the government will move to apply tariffs or quotas of its own.
This was all depressingly predictable as soon as Trump imposed tariffs on steel and aluminum imports, but read the first sentence of the linked report carefully. It describes Morneau's move as "an olive branch of sorts" to the Trump White House.
I confess I had to read further into the article to discover the supposed logic here. Apparently the White House is complaining that Canada represents a back door into the US market for steel from third countries (i.e., primarily, China). It's not clear how this works: steel trans-shipped from China to the US via Canada is still subject to the US steel tariff, so there seems to be no advantage to be had. Morneau's concern is surely that steel that was formerly headed to the US is now being rerouted to Canada as its final destination, displacing domestic production.
So it may not be much of an olive branch, though it will probably do no harm if the big thinkers in the White House see it that way. What we can see, however, is that the precise ripple effects of an individual trade measure, be it tariff or quota, are difficult to foresee in advance. Moreover, those effects can surface very quickly, forcing other countries (Canada in this particular case) to institute protective measures of their own that will in turn set off other hard-to-predict reactions.
If this is the fallout from tariffs on a relatively commoditized product such as steel, one can scarcely imagine the impact of tariffs on a much more closely integrated industry such as automobiles. Better hope we don't have to find out.
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