Canada to retaliate 'dollar for dollar' after U.S. slaps 10% tariff on aluminum, and could focus on products that would cause pain in electoral districts held by key Republicans

Ottawa will impose retaliatory tariffs on U.S. goods in response to President Donald Trump's decision to restore a 10 per cent tariff on Canadian aluminum imports.

Prime Minister Justin Trudeau and Deputy Prime Minister Chrystia Freeland announced the measures Thursday evening hours after Trump said he would impose the tariffs during a campaign speech at a Whirlpool factory in Ohio, citing national security concerns.

Freeland, in a statement, said Canada "intends to swiftly impose dollar-for-dollar countermeasures" in response.

"Canadian aluminum does not undermine U.S. national security. Canadian aluminum strengthens U.S. national security and has done so for decades through unparalleled co-operation between our two countries," she said.

Trudeau said, "We will always stand up for our aluminum workers. We did so in 2018, and we will stand up for them again now."

The United States slapped import tariffs on Canadian steel and aluminum in 2018, before removing them last year as part of a broad free trade deal now in force.

Canada retaliated that time with $16.6 billion in tariffs on U.S. products, including ketchup, ballpoint pens, licorice, orange juice, whisky and toilet paper. At the time, Canada focused on products that would cause pain in electoral districts held by key Republicans, something that could be done again given the U.S. election is only three months away.

Trudeau and Freeland didn't specify what U.S. goods will be subject to countermeasures, nor whether the government will follow a similar strategy of targeting goods produced in Republican districts.

The new U.S. tariff will be in effect as of Aug. 16.

A subset of American metals companies have complained that Canadian aluminum has recently been dumped on the U.S. market.

Canadian aluminum-makers have said they switched production during the COVID-19 pandemic as demand for higher-end products crashed, and the resulting aluminum has been sent to the U.S. primarily for storage.

The Aluminum Association of Canada (AAC) said last week those exports fell 16 per cent in June and 40 per cent in July as the system was starting to rebalance.

AAC president Jean Simard said U.S. tariffs will destabilize Canada's industry and supply chains in an economy that is already struggling under the weight of the pandemic.

"It's the wrong thing for the wrong reason at the wrong time for the wrong people," he said.

Simard said Canada is not flooding the U.S. market and needs "to hit back," at the very least, on U.S. products containing aluminum. He said that could also extend beyond aluminum.

"I think we're going to ponder the possibilities in the coming weeks and see what is on the one hand reasonable and on the other hand can be painful," he said. 

'A step in the wrong direction'

American business groups largely oppose Trump's plan, since it will raise costs of the metal for U.S. manufacturers, who will have little option but to pay the tariff and import the metal anyway because the U.S. does not produce enough of the metal to satisfy domestic demand.

Canada supplied about three-quarters of all the aluminum imported into the U.S. between January and May of 2020, said the executive order implementing the tariff on "non-alloyed unwrought aluminum."

This isn't the first time that Prime Minister Justin Trudeau and U.S. President Donald Trump have clashed on metal tariffs. (Patrick Doyle/Reuters, Patrick Semansky/The Associated Press)

"The administration's move to reimpose tariffs on aluminum from Canada is a step in the wrong direction," said Myron Brilliant, head of international affairs for business lobby group U.S. Chamber of Commerce.

"These tariffs will raise costs for American manufacturers, are opposed by most U.S. aluminum producers and will draw retaliation against U.S. exports."

The president of the industry association that represents U.S. aluminum producers said he is disappointed that Trump did not listen to domestic producers, who have been lobbying against imposing the Section 232 tariffs.

"After years of complex negotiations and hard work by government, industry and other leaders across North America to make the U.S.-Mexico-Canada Agreement a reality, this ill-advised action on a key trading partner undermines the deal's benefits at a time when U.S. businesses and consumers can least afford it," said Tom Dobbins, president and CEO of the Aluminum Association.

Dobbins said reports of a surge of aluminum imports from Canada are grossly exaggerated. 

Shades of NAFTA

Chris Sands, director of the Canada Institute at the Woodrow Wilson International Centre for Scholars in Washington, D.C., said aluminum is being used as a cudgel in a trade dispute is reminiscent of the role softwood lumber played in the lead up to the first Canada-U.S. free trade deal a generation ago.

Disputes over softwood lumber threatened to derail that deal at the time, which is why both sides agreed to carve out the issue from a broader agreement, a decision which caused the issue to fester for years since it wasn't included in the agreed-upon rules.

"We temporarily resolve the dispute. We got our big trade deal [but] we then went back to the trade war," Sands said in an interview with CBC News.

Similarly here, the aluminum tariffs were excluded from the comprehensive trade deal that the U.S. and Canada and Mexico agreed to in 2019. "As soon as Canada's Parliament, the U.S. Congress and the Mexican Congress approved the [USMCA] deal he's gone back to the trade war that he interrupted in order to get a deal."

Opposition blames Liberal government

Opposition politicians moved quickly to blame the Liberal government for not standing up to the U.S. president.

"Justin Trudeau has once again let down Canada's aluminum workers," read a joint statement from four Conservative MPs, including international trade critic Randy Hoback and Canada-U.S. relations critic Colin Carrie.

"The U.S. administration has been foreshadowing new tariffs on Canadian aluminum for weeks, so why didn't the Trudeau government take action to protect Canadian workers?"

The Conservatives said Ottawa should immediately retaliate to send a clear message to the U.S.

"Unfortunately, the Trudeau government has put Canada in a weaker position to combat these tariffs, after the concessions they made during the last round of American trade action," the statement said. "Canada can only retaliate on like products, putting our country at a strategic disadvantage."

NDP critic for international trade Daniel Blaikie said it's Canadian aluminum workers who will be hurt by what he called Trump's "electioneering" and the Trudeau government's "lack of action."

"The federal government has known for weeks that this was in the works," said Blaikie. "Now, they owe it to Canadian aluminum workers to release a plan for how they'll help protect their livelihoods until we have a more reliable partner in the White House."