Tariffs, a word once reserved for politicians and economists, has found its way into the lexicon of ordinary Canadians, thanks to a trade war launched by U.S. President Donald Trump early last year.
Last month, the White House announced a new round of steep, 50 per cent tariffs on more than 700 Canadian products — the latest development in a series of announcements that has become increasingly difficult to keep track of.
So what is actually being taxed at what rate, and how do these new tariffs fit into the bigger picture? Here is a visual explanation.
The Bank of Canada estimates that 95 per cent of Canadian exports to the U.S. are CUSMA compliant, which in theory means that all of those products should be exempt from tariffs. So how is the U.S. able to tax 20 per cent of our exports?
In the case of the Section 232 tariffs, which specifically target products such as steel, aluminum and their derivatives, an exemption from CUSMA was claimed on the basis of national security.
“Whether that’s convincing or not is a separate conversation,” says Trevor Tombe, Professor of Economics at the University of Calgary. “You could probably make up some convoluted story for almost anything you want to do, and that’s what kind of makes it an interesting grey area.”
While the newest Section 338 tariffs only affect about 5 per cent of total Canadian exports, they notably target products that should be protected under CUSMA. This time, the claim for doing so is alleged discriminatory trade practices, including dairy industry policies and the banning of alcohol sales some provinces.
So is that allowed, legally? That’s up to the U.S. courts to decide. Tombe explains that when it comes to trade agreements like CUSMA, in addition to a treaty between two nations, each country implements laws that protect that treaty.
“If there is a violation, it wouldn’t be that they’re violating the treaty” he says. “It would be about violating U.S. law”.
In theory, CUSMA is simple enough: it should protect Canadian-made goods from tariffs within the continent, but another grey area is how ‘Canadian-made’ is defined. With products like oil that’s relatively straightforward, but for something like cars, which contain many parts and raw materials, it can be difficult to measure. This is further complicated by the fact that Canada and U.S. production processes are embedded in one another.
“A massive share of the value of our exports is made up of things that we bought from the States.” says Tombe. “We bring stuff from the States up here, do something with them, and then ship something back.”
On Sept. 8, Canada will impose dollar-for-dollar counter-tariffs, further complicating the trade war that goes against a longstanding collaborative approach to production between the two countries.
“Trade between us and the U.S. is largely not us specializing in one thing and them specializing in another,” says Tombe “It’s literally us producing things together.”
