Washington Insider -- Monday

Metals Tariffs Lifted on Canada and Mexico

Here’s a quick monitor of Washington farm and trade policy issues from DTN’s well-placed observer.

US, Mexico & Canada Reach Agreement on Section 232 Tariffs and Retaliation

The U.S., Mexico and Canada Friday announced the three countries reached agreement that will see the U.S. lift its Section 232 tariffs on imports of steel and aluminum from the two countries.

In exchange, Canada and Mexico will lift their retaliatory tariffs that they put in place on a host of U.S. products, including several agriculture items.

But perhaps the most important aspect of the deal is that Canada and Mexico have both agreed not to hit non steel and aluminum products with tariffs should the U.S. re-impose duties should the shipments of steel or aluminum surge in the future.

This removes one of the major obstacles for approval of the U.S.-Mexico-Canada Agreement (USMCA), but it does not guarantee passage at this point.

Japan Lifts BSE-Related Barriers on US Beef

Japan has removed its age-related restrictions on U.S. beef, now allowing beef from animals of all ages after years of limiting those shipments to beef from animals 30 months or younger since 2013.

Japan lifted domestic age-based cattle BSE testing in 2017 – paving the way for lifting restrictions on imported beef. On Jan. 19, Japan's Food Safety Commission (FSC) determined lifting age restrictions on beef imports from the US, Canada and Ireland posed "a negligible risk to human health" setting the stage for today's announcement.

However, the U.S. beef industry continues to focus on the fact that U.S. beef faces higher tariffs going into Japan compared to countries that were part of the former Trans-Pacific Partnership agreement.

Japan also lifted its BSE-linked age restrictions on imports of beef from Ireland.

Washington Insider: Metals Tariffs Lifted on Canada and Mexico

At the end of last week, President Donald Trump announced that the U.S. will lift its tariffs on Canadian and Mexican steel and aluminum. Bloomberg and others reported that the policy change will help open up a path for the three countries to ratify the rewritten North American Free Trade Agreement and that it signals “progress” in one theater of the President’s multi-front trade war.

In a joint statement, Canada said it will lift retaliatory duties on U.S. products as part of the deal and Mexican Deputy Foreign Minister Jesus Seade welcomed the U.S. action said it would open the way for Mexican lawmakers to approve the new trade pact.

As part of the deal, the U.S. argues that it will be able to re-impose the tariffs on metals “if not enough is done to prevent any surge of metals imports beyond historical levels.” The nations have also agreed to ramp up efforts to trace where the metals have come from originally, to stop the diversion of shipments from other nations to dodge tariffs, Bloomberg said.

In the meantime, President Trump is increasingly aligning trade with U.S. security, Bloomberg says and argues that this makes trade wars against China both more likely and harder to resolve. With his crackdown on telecom giant Huawei and a directive targeting European and Japanese carmakers, the administration is displaying a penchant to invoke U.S. national security in the broadest way possible.

Bloomberg says this change is exploiting a loophole in international trade rules to allow “what his predecessors spent years urging China and others not to use at the risk of opening a protectionist Pandora’s box.”

Both Mexico and Canada applauded the U.S. decision. The office of President Andres Manuel Lopez Obrador said that there would be no quotas.

Prime Minister Justin Trudeau of Canada called the deal “pure good news,” and agreed that it “could help clear the way for the ratification of the United States-Mexico-Canada Agreement” reached late last year.

He noted that the deal stemmed from steady conversations with the United States and that both sides agreed that the tariffs were “harming workers and consumers on both sides of the border.”

In its report on the announcement, the New York Times commented that “in recent weeks, the pressure on Mr. Trump to reach an accord with Canada and Mexico began to outweigh his affection for the tariffs.”

It cited a congressional aide who has been involved in the talks among the three countries as noting that the “White House was growing increasingly sensitive to pressure from Republicans in rural states, whose farmers have been suffering from retaliation that diminished their access to sell in neighboring markets.”

Their problems were compounded when talks with China broke down this month, NYT said, and ultimately Trump decided that he needed a victory on trade.

American lawmakers of both parties, as well as Canada and Mexico, had insisted on the removal of tariffs on steel and aluminum before votes would be held. Lawmakers have argued that the tariffs, while aimed at other countries, hurt American companies and consumers by raising prices for products that use imported steel and aluminum.

The White House justification of the tariffs by citing national security had drawn particular scorn in Canada, where many were already reeling from Trump’s bullying and mocking of Trudeau and his trade policies, NYT said.

Canada had argued against the tariffs on the grounds that it buys more American steel than any other country while nearly 90% of Canadian steel and aluminum exports go to the United States. In 2017, the Canadian steel industry employed more than 23,000 Canadians and the aluminum industry about 10,500 workers. After the imposition of the duties, some economists predicted it could cost the Canadian economy more than $3 billion Canadian dollars annually.

Even with an agreement to resolve metal tariffs, the North American pact still faces potential opposition from congressional Democrats. They have criticized its labor and environmental protections as insufficiently weak, and said that its protections for drug companies may undermine their efforts to make health care more affordable.

The decision to ease the 25% tariffs on steel and 10% tariffs on aluminum came as the White House also announced a six-month delay in determining whether to impose levies on foreign automobiles. That extension delivers a temporary reprieve to global automakers and auto suppliers. But it sets up a tight deadline for the President and his advisers to reach trade deals with Japan, Europe and potentially other countries.

So, the partial removal of the metals tariffs is important and may help Congress decide to approve the deal. However, there is still heavy tension over a broad range of trade policies and the administration’s “get tough” approach — debates likely to intensify as the 2020 elections approach, Washington Insider believes.

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