The US administration mulls offering Mexico and Canada a 30-day exemption from its new steel and aluminium tariffs, officials told local media on Wednesday.
It recognized the complex, integrated economies of all three trade partners in the North American Free Trade Agreement (NAFTA), and the damage a 25% import tariff on steel and 10% tariff on aluminum imports into the US would cause all three nations.
Trump on Thursday pressed ahead with slapping import tariffs of 25 percent on steel and 10 percent for aluminum, effective later this month.
Moreover, there is a risk, albeit slight, that imposing tariffs could set off a beggar-thy-neighbor trade war. The president has "huge leeway because it's national security", says Amanda DeBusk, a trade lawyer and partner at Hughes Hubbard & Reed LLP.
One steel trading source in Canada said American customers, both warehouses and steel users, had been buying up Canadian metal in the spot market, because of the threat of a tariff, but supply was limited.
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Since Trump suggested the tariffs earlier this week, opining that "trade wars aren't so bad", Republicans on Capitol Hill have been trying frantically but unsuccessfully to talk him out of it. NAFTZ strongly supports NAFTA renegotiation aimed at achieving these goals and positioning the FTZ program to do much more to promote American competitiveness in the NAFTA region.
The source who works at a service centre that supplies the auto sector in the United States and Canada said he is purchasing more steel products from mills in both countries.
NAFTZ and its members have been strong supporters of the NAFTA and believe it has been an important factor in making USA manufacturing more globally competitive, supporting high-value-added employment in the United States, expanding export markets for US products and services, promoting efficient supply and value chains, and improving standards of living.
Likewise, Trump's invitation to countries to plead their case for being exempted from the tariffs might prove a tough sell. Jeff Flake has threatened to introduce legislation to nullify the President's tariffs if they are anything like what Donald Trump is predicting.
Congress has the power to challenge President Trump on new tariffs, but it's unlikely lawmakers will act, even though almost all congressional Republicans oppose the president's trade policy because they believe it will harm the USA economy. Specifically, Kansans are concerned about China retaliating on USA sorghum exports. Or jack up the tariffs even higher on the countries that still must pay them. A provision in a 1962 US law allows the president to set emergency tariffs as a security issue. But Trump said other American allies can get exemptions later, in exchange for something in return.
But if the WTO affirms Trump's justification for tariffs, it could encourage other countries to follow the USA example: They could use national security as a pretext for tariffs of their own.