Canada would be entitled to trade retaliation measures of US$3.2 billion if U.S. President Donald Trump’s proposed tariffs on steel and aluminum are found to have violated World Trade Organization rules, according to a report from the Washington-based Peterson Institute for International Economics.
Relying on data from the Trump administration’s own models, the report found that Canada would endure the toughest trade losses under the tariffs. Of a total US$14.2 billion in losses imposed on partners, the European Union would take the next largest hit at US$2.6 billion followed by South Korea and Mexico at around US$1 billion each, according to Chad Bown, senior fellow at the institute and author of the report.
China – targeted by Trump as the main culprit in flooding the world with steel and aluminum – would suffer only US$689 million in estimated trade losses, according to the report.
Trump rattled world markets last week when he proposed tariffs of 25 per cent on steel and 10 per cent on aluminum, arguing the imports posed a threat to national security. Rules established by the WTO would permit a country to retaliate if there is a legal finding that this rationale is baseless.
“The compensation—or retaliation—limit has historically been set at the value of an exporting country’s lost trade,” Bown writes.
It follows that Canada, as the nation most injured, would be entitled to the largest retaliation at US$3.2 billion, he added.
How would it work? First, the U.S. would have to impose the levies. Then Canada would have to challenge the country’s claim that the tariffs are justifiable under the “national security exception” in the General Agreement on Tariffs and Trade (GATT). Should a WTO panel rule against that reasoning, the U.S. would be required to amend the tariffs. If it refuses, Canada can request compensation and the WTO can establish an “authorized retaliation.”
Once the amount of lost trade is established, Canada would have discretion to draw up a list of which U.S. products to target. These items can be selected according to economic or political motives. For instance, if Trump goes ahead with the tariffs, the EU has said it will respond with levies on Harley-Davidson motorcycles, Kentucky bourbon and Levi’s blue jeans — products manufactured in the home states of key Republican leaders including Senate Majority Leader Mitch McConnell and House Speaker Paul D. Ryan.
“If you think hitting Paul Ryan would be a way to get Trump to remove the tariffs, maybe pick products from his district in Wisconsin, that’s the idea,” Bown said in an interview.
Authorized retaliations are rare – the WTO has established them in fewer than 15 disputes since 1995. But Canada was authorized a couple of years ago to retaliate to a limit of US$1 billion against the U.S. in a case involving regulations on rules of origin labelling on beef. But the U.S. dropped the regulations before the retaliation ever took place.
“Sometimes the retaliation is implemented, but more often the authorization triggers the reform,” Bown said. “It’s how the process usually works out.”
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