Are these concessions worth making?
Media reports earlier today suggest that the Government of Canada has offered a list of potential concessions to the Americans in exchange for relief (not specified) on existing Section 232 tariffs, as well as the threatened Section 338 tariffs. A reminder that the 232 tariffs apply to:
Canadian steel, copper and aluminum, at rates between 10% and 50%.
Canadian lumber at 10%.
Canadian autos, trucks and autoparts at 25%, but only on the non-CUSMA compliant portions.
Canadian buses at 10%.
Canadian cabinets and furniture at 25%.
Some Canadian semiconductors and derivative products, at 25%, unless they are for priority US uses like data centres.
The 338 tariffs would apply to a very weird list of things, including Canadian dairy and booze, but also things we don’t make here but might re-export to the U.S., like agar-agar and tequila.
The Canadian concessions on the table are reported to include:
An end to the provincial bans on U.S. alcohol — something that various U.S. political leaders, from California to Kentucky, have raised as a concern.
Changes to provincial procurement rules — presumably the ones that prioritize domestic sources.
Changes to how the tariff-rate quota for U.S. dairy is interpreted and applied in Canada.
The relief on the 232 tariffs might be in the rates applied, an expansion of carve-outs for CUSMA-compliant goods, or a tariff-rate quota approach (ie: X amount enters at Y tariff rate; after that the tariff rate rises to Z). The larger CUSMA revamp talks would be separate, and move forward later. The goal would be an interim agreement where everyone gets something. As I wrote in my last note, Trump needs to be seen to get a win (US booze and dairy would give him that), but so too does Canada.
Is it worth agreeing to put U.S. booze back on the shelves for sectoral relief and a general turning down of the temperature? Maybe. I say just make sure that it’s prominently labeled for country of origin. Let’s see how the market goes. But this isn’t the Government of Canada’s call to make and requires provincial buy-in.
Is it also worth changing provincial procurement rules for the same reason? Again, maybe, particularly if historic supply chains and transportation costs make it cheaper to do all of this planned building across the country with a more diverse set of construction goods. For example, moving steel across Canada by train can be expensive, but it floats in container ships for a lot less money (which likely works to the benefit of Chinese firms that are already dumping low cost product). Again though, provincial procurement rules aren’t the Government of Canada’s call without provincial agreement.
As a sidenote, I do find it passing strange that none of the media reports mention federal procurement rules being on the table. On jointly funded federal-provincial projects, the feds have also been looking to treat federal rules as having primacy. Maybe there is some pathway that would permit greater intergovernmental coordination inside Canada. That’s an arguably bigger win than anything the U.S. administration could possibly offer.
And on dairy, Canada did largely lose the 2023 CUSMA panel hearing on the application of the tariff-rate quotas negotiated under Trump 1.0 in 2018. Yes, Joe Biden was the American President when that dispute went ahead. If I understand the dispute correctly, the U.S. wants food retailers and food service providers to become eligible to get an annual quota for importing from the U.S. The U.S. wants changes to how the quota is calculated and it isn’t keen on our current reporting requirements for quota applicants and holders. We lost on all three of these points in the 2023 panel. There are probably technical solutions here, and if the Trump administration really wants to see American cheese in Canadian grocery stores, I’m sure we can again find a solution that requires clear country-of-origin labelling and let Canadian consumers do their thing.
On the one hand, there is a strong likelihood that even if there is a technical solution to be had and a term sheet that could be agreed on by the Canadian and U.S. negotiators, Trump is not trustworthy. He’s likely to wake up one morning and decide to threaten tariffs on Canadian agar-agar (not something we make here) because we’re “nasty”.
There is no such thing as a conclusive deal with this administration. There are only consecutive rounds of bargaining, the passage of time, and the meandering attention of a distractible leader.
On the other hand, it might be good, strategically, to command a little less of Trump’s attention for a bit as he heads into what are likely to be very bad midterms for the GOP.
Relief on the section 232 tariffs is something that Canada wants, in our own interests. If the price of the concessions is equal to or less than the value of the tariff relief from the U.S., then maybe these are concessions worth making. Look, we’ll all have to tell Trump the price was higher than the value of the relief; that doesn’t make it true.
I cannot, on a Friday afternoon, tell you how the math actually maths. I’ll try to get to that soon. But, I do think it’s progress that we’re finally talking about getting something for giving something.
Your detailed (and deeply well informed) suggestions on the trade negotiations are refreshing to this reader. Since Canada is dealing with a crocodile, I suspect that pragmatic, even short-term strategies such as tariff relief make sense, as long as our negotiators have a firm grasp of what leverage we have both in the short and long term. It'll be interesting to see the math, which'll provide guidance on the price of concessions. (Which I hope doesn't come off as conflating price with value.)
i think when you math the math you might consider adding in the trail of concessions that brought us here and the non-quantifiable costs of celebrating illegal war and kidnapping and the inevitable costs of negotiating with a fascist.