Trump’s new tariffs on Canada: a gun on the negotiating table

After giving advance notice on Truth in a post in which he presented it as retaliation for the smoke from wildfires that are spreading from Canada into the United States, Trump announced his intention to impose 50 per cent tariffs on most Canadian goods by dusting off a 1930 law that has not been applied for decades. Canada is accused of discriminating against US cars, alcohol and dairy products, although many analysts believe this is a move to exert pressure in the negotiations on the USMCA, the trade agreement between the US, Mexico and Canada. The White House has in fact stated that the tariffs will come into force in 30 days’ time, whilst the process of reviewing the trade agreement between the three American countries began on 1 July. However, just as the three neighbouring countries were kicking off the World Cup, which they are co-hosting, Trump reiterated his view that “the United States needs nothing from Mexico or Canada”, calling into question the trade deficits with its North American partners.

These retaliatory tariffs are in response to previous US tariffs, imposed to punish Canada for allegedly not doing enough to combat fentanyl trafficking. Among the products affected are wine, ice hockey sticks and cement. Excluded, however, are energy products, fish, critical minerals, potash and products already subject to tariffs aimed at protecting national security, such as steel and aluminium. The Canadian Prime Minister, Mark Carney, responded with a statement in which he pointed out that his government had put forward proposals to resolve the disputes with Washington, and that Trump’s tariffs had breached the trade agreement between the two countries. “This trade dispute has increased costs for households, particularly in the United States,” he said.

Trump introduced customs duties under Section 338 of the Smoot-Hawley Trade Act of 1930, which several Democratic MPs had proposed repealing last year precisely because they feared the use Trump might make of it. That legislation authorises the president to impose tariffs of up to 50 per cent to offset the burden or disadvantage arising from unequal taxation or discrimination by another country against US trade. It was introduced by President Herbert Hoover in an attempt to respond to the severe crisis of 1929 by significantly increasing tariffs on over 20,000 foreign products. However, 25 countries retaliated by raising their own tariffs on US goods, leading to a decline of around 66 per cent in international trade between 1929 and 1934. U.S. imports from Europe fell from $1.3 billion in 1929 to just $390 million in 1932, but exports plummeted from $2.341 billion to $784 million in 1932, exacerbating the crisis. The Reciprocal Trade Agreements Act, signed in 1934 by Franklin D. Roosevelt as part of the New Deal, led to a turning point that culminated in the creation of the GATT in 1947 and the WTO in 1995: both organisations entrusted the imposition of sanctions against trade discrimination to a higher authority, thereby rendering Section 338 obsolete in theory. That is, until Trump rediscovered it.

The White House now states that Trump is “taking action to hold Canada accountable for its continued discrimination and the unreasonable and unfair treatment of US trade, which has burdened and disadvantaged American workers”. “We hold Canada responsible for failing to take proper care of its forests and the vegetation within them, and for the fact that the United States is needlessly inundated with dirty, polluted and unhealthy air, the quality of which is dangerous and utterly unacceptable!”, he had also written on Truth.

In February, in a 6-3 ruling, the Supreme Court ruled that Trump had unlawfully used his emergency executive powers to impose tariffs globally, forcing the Administration to find alternative methods of raising taxes on imports, based on a series of legal precedents. A poll conducted by Focaldata on behalf of the Financial Times earlier this month found that over two-thirds of voters disapprove of Trump’s handling of the cost of living.