And so, the trade wars have begun...
In slightly more than a strongly-worded email Canadian PM Justin Turdeau exclaimed his indignance at the Trump administration's decision to impose tariffs on Canadian steel and aluminum imports, saying it is an "affront":
“Let me be clear, these tariffs are totally unacceptable,”
Trudeau said “Canada is a secure supplier” of metals to the U.S. military, and the idea of a security threat “is inconceivable.” He called the tariffs “punitive” noting that US has a $2billion steel trade surplus with Canada.
With that he announced retaliatory tariffs against the US.
Canadian Foreign Affairs Minister Chrystia Freeland announced “dollar-for-dollar tariffs for every dollar levied against Canadians by the U.S.,” starting July 1 that will remain in place as long as U.S. tariffs do.
The tariffs cover Whiskey, Orange Juice, and other food products as well as steel and aluminum.
Measures will apply to up to C$16.6 billion dollars of products.
Canada's full list of actions includes 25% tariff on the following...
And 10% tariff on the following items...
As Goldman explains, the decision to impose tariffs on Canada and Mexico (and now seeing Canada's response) suggests that prospects for a NAFTA agreement in the near-term are fading.
The Administration’s negotiating stance is often unpredictable so there is a risk of over-interpreting any single event. That said, this represents another signal that prospects for a near-term NAFTA deal are fading, just a few weeks after it had appeared fairly likely that a “skinny” agreement involving the auto sector might be reached.
However, Goldman note that the incremental inflation effect of these tit-for-tat tariffs should be small. We estimate that adding Canada, Mexico, and the EU to the countries facing a tariff of 25% on steel and 10% on aluminum could boost core PCE by roughly 1bp. Imports from NAFTA and EU countries make up just under half of steel and aluminum imports.
Finally, in his Q&A Trudeau made it clear that "Canada's relationship with US is deep and complex" but warned that "US will harm its own people with such measures."
Mexico said earlier that it would impose its own retaliatory tariffs on a wide range of products from US steel to pork, sausages and fruit.