Canada’s anti-tariff stance on aluminum is not just about free trade. It’s also about job protection in Quebec, writes Jack Mintz. Below is an excerpt from the article, which can be read in full here.
By Jack Mintz, August 14, 2020
The U.S. reinstatement of a 10 per cent tariff on Canadian unwrought aluminum has brought unanimous condemnation from Canadian business and government leaders. Deputy Prime Minister Chrystia Freeland called it an “absurd” action that hits U.S. consumers with higher prices when their economy is on its knees. Though much can be said about the unfairness of U.S. trade protectionism, there is more to the story than meets the eye. Canada is not so innocent.
The new tariff only applies to primary production, leaving later-stage aluminum products exempt, potentially enabling Canadian aluminum producers to avoid some of the tariff’s impact. Almost 90 per cent of aluminum production is in Quebec and four-fifths of that is sold to the United States — accounting for about 10 per cent of Quebec’s exports.
With aluminum prices falling in the past few months, the Trump administration argues that the surge in Canadian primary aluminum production was harming the industry. Based on this claim, the U.S renewed its Section 232 national security tariffs on unwrought aluminum. There is little evidence, though, that Canadian primary exports have surged. In retaliation, Canada is applying $3.6 billion in tariffs on U.S. aluminum-intensive exports ranging from aluminum oxide to golf clubs.
The economic effect of these tariffs is not obvious. If a small country imposes a tariff, it shoots itself in the foot: consumer prices increase without hurting producers in other countries. If a country with a large share of the market imposes a tariff, however, some of it will be shifted forward to its own consumers but some results in lower import prices. How come? When a big buyer (in this case the U.S.) decides to buy less, that reduces overall demand and pushes world prices lower.