Trade Negotiations between the U.S and Canada Suspended: Possible Effect on Prices
After the U.S. president decided to discontinue trade discussions with Canada, there could be a significant impact on the prices of cars, auto parts, and home appliances. This surprising move was reportedly caused by a negative TV commercial about tariffs, released earlier by Ontario, a Canadian province.
The president expressed his decision on his social media page, stating, "Tariffs are very important to the national security, and economy, of the U.S.A." He also mentioned that the termination is a result of Canada's unsatisfactory behavior.
Tariffs and Trade War Concerns
The controversial ad featured a 1987 speech by ex-President Ronald Reagan, where he imposed duties on Japanese goods but warned about the long-term economic dangers of hefty tariffs and the possibility of a trade war. The president claimed, without providing proof, that the commercial was designed to influence a Supreme Court case about tariffs scheduled for next month.
Canadians Respond
In response to the escalating tension, Doug Ford, Ontario's Premier, emphasized the importance of maintaining a cooperative relationship between the two nations. He quoted President Ronald Reagan, saying, "We are stronger together" and sent blessings to both countries.
Existing Tariffs and Trade Agreements
Currently, Canadian goods are subject to a hefty 35% tariff. However, many of these exported goods to the U.S. are not subject to duties because they comply with the United States-Mexico-Canada Agreement (USMCA), a free trade agreement. In addition to this, a different set of Canadian goods face sector-specific tariffs, with steel and aluminum being taxed at 50%.
Canada had been hoping to lower or eliminate these steel and aluminum tariffs during the trade talks. However, the abrupt end to these discussions could mean that these tariffs will remain in place for a longer time. This is particularly significant as Canada is the leading exporter of steel and aluminum to the U.S.
Impact on Consumers
Experts highlight that steel and aluminum are essential components of many products, including home appliances, food packaging, cars, and auto parts. This means that these tariffs could lead to increased costs for consumers. For instance, around 60% of a car's weight is made up of steel. So, when steel imports are heavily taxed, U.S. manufacturers have to pay more for steel. This increase in cost is often passed onto consumers as companies try to balance their expenses.
This increase in prices due to tariffs also affects major home appliances like refrigerators, dishwashers, and washing machines, which partly rely on steel.
Recent Trade Negotiations
Earlier, discussions were suspended over Canada's proposal for a Digital Service Tax, which would have imposed a 3% tax on U.S. technology companies. However, the talks resumed after Canada dropped plans for the tax.
Last year, the U.S. had a $63 billion trade deficit with Canada, which was a slight decrease from the previous year. In comparison, the U.S. had a $295 billion deficit with China and a $171 billion deficit with Mexico. The U.S. is the destination for roughly 75% of Canadian exports, while these products account for approximately 11% of U.S. imports.
Future Trade Discussions
Despite the current situation, major Canadian exports to the U.S. like crude oil, natural gas, and motor vehicles remain tariff-free due to compliance with the USMCA. However, the USMCA is due for a joint review next year, which could potentially alter the agreement. If the current frustrations continue, it might affect the price of additional imported products like cars.
Experts believe that the current breakdown of tariff discussions doesn't seem to bode well for future negotiations.