On March 23, 2018, the United States began imposing new, 10 percent tariffs on certain aluminum from most countries, including Canada. The authority for those tariffs is Section 232 of the Trade Expansion Act of 1962, a national security provision, and the president’s decision to impose tariffs on aluminum followed a Commerce Department finding to the effect that imports of aluminum posed a threat to U.S. national security.
Canada has long been America’s top source for imported aluminum and was covered by the initial Section 232 proclamation on aluminum. However, in a subsequent proclamation, issued in May of 2019, President Trump lifted the Section 232 tariffs on aluminum imports from Canada.
On July 1, 2020, USMCA, the North American trade agreement that replaced NAFTA, went into effect for all three countries: the United States, Mexico, and Canada. And there were some who thought that the achievement of USMCA would finally have put to bed the issue of U.S. tariffs on aluminum from Canada.
But it was not to be. On August 6, 2020, President Trump issued a further proclamation on this issue and reimposed the tariffs on Canadian aluminum. In it, he explained:
… I have determined that the measures agreed upon with Canada are not providing an effective alternative means to address the threatened impairment to our national security from imports of aluminum from Canada. I have determined that it is necessary and appropriate to re-impose the 10 percent ad valorem tariff proclaimed in Proclamation 9704, as amended, on imports of non-alloyed unwrought aluminum articles from Canada, commensurate with the tariff imposed on such articles imported from most countries.
***
Today’s entry is, in effect, a blending of two documents. One is the President’s proclamation of August 6. The link below will take you to the full text.
The other is the portion of our August 20 interview with Nadia Bourély, when she met with members of the Global Business Dialogue. Ms. Bourély is the Minister-Counsellor for Economic and Trade Policy at the Canadian Embassy in Washington. What follows below is a lightly edited transcript of the portion of that interview that dealt with U.S. tariffs on aluminum from Canada. It is a little long but very rich. And, as you will see, COVID-19, is very much part of the picture.
From the Interview
*GBD: Aluminum. I confess I regret this question. I had rather hoped that the issue of the 232 or National Security tariffs was a thing of the past, at least in terms of the U.S.-Canada relationship. Presumably, there are discussion going on between the two governments on this issue, now that a 10 percent tariff on certain aluminum imports from Canada has been reinstated. Can you comment on how this issue might be resolved?
NADIA BOURÉLY: I confess that I also regret that you had to ask this question, Judge. I mean, the answer is not that complicated. Frankly, I think Canada has been very clear that the decision to reimpose tariffs on Canadian aluminium is unacceptable and completely unwarranted. We have been an important and a secure aluminum supplier to U.S. manufacturers. This trade has been mutually beneficial for a very long time. And Canadian aluminum does not undermine [U.S.] national security. It actually strengthens U.S. national security.
Right now, frankly, in a time of pandemic, our focus should really be on economic recovery and celebrating the entry into force of USMCA and working together to strengthen our supply chains, including the USMCA provisions that … we can [use to] strengthen the North American aluminum supply chain. So, this is what we should be doing.
Now, you know, these latest U.S. tariffs on imports of Canadian aluminum are going to hurt U.S. companies, U.S. communities, families. It is going to raise costs for automakers and also other manufacturers that use imported aluminum in their products: trucks, soft drinks, beer. I learned last week that the most expensive element in a can of beer is actually the aluminum that goes into the can.
And, with the exception of two companies, there is no support for these tariffs in the U.S. The U.S. aluminum association, which represents nearly 700,000 American jobs, opposed the tariffs and publicly called the decision “ill-advised.”
But unfortunately, the tariffs came into force on August 16. We are certainly standing up for our aluminum industries and our workers. So, in the face of these tariffs, we really have no choice but to impose counter-measures on U.S. exports to Canada.
COVID AND ALUMINUM
The COVID pandemic has affected the aluminum industry as it has every other manufacturing sector, obviously, on both sides of the border, with some complete shutdowns, as you know. So, in both countries, the economic lockdown has been tough on aluminum producers. They have adjusted their production of unwrought aluminum by producing more commodity grade aluminum and less value-added category aluminum, because downstream users of the commodity grade aluminum were shutting down. So there was less demand for it.
And so, while non-alloyed imports from Canada increased recently – that’s the commodity grade – the value added alloyed unwrought imports actually decreased. And this is a completely normal market reaction to a significant decline in manufacturing.
So, despite these market changes that are due to COVID, there has been in fact – and I want to be very clear – there has been no surge of imports of unwrought aluminum. You know, unwrought aluminum is the relevant product category that includes both alloyed and non-alloyed. So, again, imports from Canada of unwrought aluminum are within historical levels.
In any event, as manufacturing demand gains momentum, the product mix between alloyed and non-alloyed is already shifting back to what it was pre-COVID. And we understand that the Canadian industry’s forecasts … show a complete return to normal by the end of the year. So, that whole, completely natural product mix that changed a little bit because of COVID is now rebalancing.
Not only was there no surge – is there no surge – but we’re also coming back to the same proportion of alloyed and non-alloyed by the end of the year. In other words, what we have been seeing since March is a completely normal reaction to COVID. It’s occurring globally. In the circumstances, reimposing tariffs on Canada is hurting both U.S. and Canada and, frankly, benefitting other countries, including aluminum exporters like Russia.
We have also tried to explain very clearly that it is not Canadian aluminum that causes the depression of global prices. We all know the common problem is Chinese aluminum excess capacity. This is what depresses global prices. Tariffs on Canadian aluminum are going to do nothing to address that issue.
CANADA’S COUNTER MEASURES
I mentioned earlier, we are going to impose retaliatory tariffs in the form of a 10 percent surtax [on certain U.S. products]. We launched negotiations [in Canada] on August 7 on a broad list of aluminum and aluminum containing products. We are going to consult Canadians and business for a period of 30 days. The expectation is that our regulatory tariffs will take effect on September 21 and will total about $2.7 U.S. billion per year.
ALL UNFORTUNATE
It’s really unfortunate. The focus should be on the opportunities of the new agreement, [USMCA], and not on new trade barriers. Canada is not a national security threat. And USMCA, frankly, already addresses issues of supply chains. So, to borrow your words, Judge, yes, such tariffs should be a thing of the past. You asked about the next step. I will quote my ambassador who recently, publicly stated that we hope, obviously, that the administration will reconsider the decision. But, in the meantime, we will retaliate dollar for dollar.
