Steel And Aluminum Quotas Remain On The Table, And Rankle Canada and Mexico

Nearly a year after imposing stiff Section 232 tariffs on foreign metals, the United States is pressing Canada and Mexico to agree to permanent limits on the amount of steel and aluminum they export to America each year.

The demand, reiterated in meetings with Canadian officials this past week, has been rejected by Canada and Mexico and is eliciting opposition from American companies that use foreign steel and aluminum in their products.

The dispute is further complicating efforts to finalize the United States-Canada-Mexico Agreement (USMCA), the replacement to NAFTA. The USMCA faces a long battle in Congress and must be ratified by legislators in all three nations.

Canada and Mexico had hoped that President Trump would remove the tariffs last year, when the three countries agreed on a new trade deal known as the United States-Mexico-Canada Agreement. That did not happen, and Mexico and Canada are now demanding that the United States drop the levies as a condition of ratifying the deal.

But the President’s advisers appear hesitant to do away with what they see as a source of leverage with Canada and Mexico. Democrats, who now control the House, have made clear they will not approve the new agreement without changes that could require all three countries to sign off, and the White House may use the tariffs as a cudgel to force Canada and Mexico to agree to any alterations in such a negotiation.

On Monday, Chrystia Freeland, the Canadian foreign minister, called the tariffs “illegal and unjust” and “completely unacceptable.” Ms. Freeland’s comments came after she left a meeting with Robert Lighthizer, the United States Trade Representative, that focused mainly on the tariffs.

Ms. Freeland said Canadians would be “really troubled” with the prospect of moving forward to ratify the new trade pact while the tariffs were still in place. “To a lot of Canadians, it just doesn’t make sense,” she said.

To try to resolve the impasse, the Trump Administration has proposed switching Canada’s current 25 percent tariff on steel and 10 percent tariff on aluminum to a quota system, in which a specific amount of Canadian metal would be allowed into the United States each year, people familiar with the discussions say.

But Canada has rejected that idea, as have American companies that use foreign steel and aluminum in their products — from beer brewers to jet makers. They argue that capping metal imports at a specific level would be more disruptive than tariffs and could result in steep price increases or a scarcity of metals.

The United States and Mexico are locked in similar negotiations over American tariffs on Mexican metal. Jared Kushner, the president’s son-in-law and a senior White House adviser, traveled to Mexico last week to discuss the tariffs, the new trade deal and investment.

The impending release of the U.S. International Trade Commission (ITC) report on USMCA, intended to provide members of Congress with in-depth analysis of the trade deal's potential economic impact, may very well have minimal impact in swaying Congressional opponents.

According to a recent report in Politico, the ITC’s analysis is likely to suggest the USMCA will have a negligible impact to U.S. GDP, which won’t serve as a bulwark against complaints by House Democrats that the agreement is short on enforcement mechanisms for its labor provisions.

On Tuesday, associations representing the aluminum industry in all three countries sent a letter to President Trump asking for their industry to be exempted from any tariff or quota. “Replacing a tariff with a quota on aluminum imports in North America would be highly detrimental,” the letter said.

The President has credited his tariffs with reviving the United States steel and aluminum industries, saying last week that American steel mills were “roaring back to life.” And American giants like United States Steel and Nucor say the tariffs have helped them build new facilities and hire workers.

Still, economists suggest those gains have come at a high price. Calculations published by the Peterson Institute for International Economics in December showed that the tariffs would create 8,700 jobs in the United States steel industry, but that steel users would pay an extra $650,000 for each job created.

Some American steel makers have promoted the idea of quotas as a way to prevent surges of cheap metal, particularly Chinese steel and aluminum, from being routed into the United States through countries like Canada and Mexico. Mr. Lighthizer, who negotiated similar quotas to help the United States steel industry during the Reagan administration, has supported the approach.

Although Canada and Mexico repeatedly insisted that they would not negotiate a revised NAFTA with the threat of levies hanging over their heads, the three countries signed their pact in November without the levies being lifted.