Canada announced billions of dollars in retaliatory tariffs against the US in a tit-for-tat response to the Trump administration's duties on Canadian steel and aluminum.
Prime Minister Justin Trudeau's government released the final list of items yesterday that will be targeted beginning July 1. Some items will be subject to taxes of 10 or 25 per cent.
"We will not escalate and we will not back down," Canadian Foreign Minister Chrystia Freeland said.
The taxes on items including ketchup, lawn mowers and motor boats amount to $12.6 billion.
"This is a perfectly reciprocal action," Freeland said. "It is a dollar for dollar response." Freeland said they had no other choice and called the tariffs regrettable.
Many of the US products were chosen for their political rather than economic impact. For example, Canada imports just $3 million worth of yogurt from the US annually and most of it comes from one plant in Wisconsin, the home state of House Speaker Paul Ryan. The product will now be hit with a 10 per cent duty.
Another product on the list is whiskey, which comes from Tennessee and Kentucky, the latter of which is the home state of Republican Senate leader Mitch McConnell.
Freeland also said they are prepared if U.S. President Donald Trump escalates the trade war.
"It is absolutely imperative that common sense should prevail," she said. "Having said that our approach from day one of the NAFTA negotiations has been to hope for the best but prepare for the worst."
Trump has explained the steel and aluminum tariffs by saying imported metals threatened the United States' national security a justification that countries rarely use because it can be so easily abused. He is also threatening to impose another national security-based tariff on imported cars, trucks and auto parts. That threat could be a negotiating ploy to restart talks on the North American Free Trade Agreement.
Freeland said there are no grounds for further US tariffs in response to Canada's actions.
Canadians are particularly worried about auto tariffs because the industry is critical to Canada's economy. Freeland said such tariffs would be "absurd" because the North American auto industry is highly integrated and parts made in Canada often go to cars manufactured in the US and then sold back to Canadians. "Any trade action is disruptive on both sides of the border," Freeland said.
Freeland said an "intensive phase" of NAFTA renegotiations will resume quickly after Sunday's elections in Mexico.
"I don't think we'll see any reaction from the Trump administration. They are prepared for this," said Dan Ujczo, a trade lawyer in Columbus, Ohio. "Candidly, the Canadian retaliation is a drop in the bucket compared to the retaliation that we're going to see from China and elsewhere."
Ujczo doubts Trump will announce auto tariffs because that would be a "red line for the US Congress" before the midterm election.
The US Department of Commerce is holding hearings on auto tariffs in late July and will subsequently release an investigative report about whether they threaten national security.
"I don't think Congress right now is expected to get engaged until after the midterm election. They've given the president a long leash and will continue to do so. The auto tariffs would disrupt that. It would change the calculus," he said.
The Canadian government also announced $1.5 billion in subsidies for Canada's steel and aluminum industries.
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