War broke out across much of the industrialized world in this year, a trade war that’s causing direct and indirect casualties in the Canadian economy.
The year’s first shot, and many that followed, was fired by U.S. President Donald Trump. In January he imposed tariffs on imports of washing machines and solar cells, many of which come from Trump’s number-one target, China.
Hostilities sharply escalated in March when Trump employed seldom-used U.S. national security law to put duties on steel and aluminum imports of 25 per cent and 10 per cent, respectively, hitting Canada, China and Europe. Prime Minister Justin Trudeau said “These tariffs are an affront to the longstanding security partnership between Canada and the United States.” He said the U.S. use of a national security provision to impose the duties was a “pretext.” Canada responded with identical duties on imports of the metals.
In April, China imposed tariffs of $3 billion U.S. of American imports such as pork, fruit, nuts and wine in response to the steel and aluminum duties. The U.S. then adopted a strategy of rapid escalation for each Chinese retaliation. A day after the Beijing announcement Washington released a list targeting $50 billion of Chinese imports, citing China’s alleged theft and abuse of intellectual property. One day later China said it would levy an additional 25 per cent tariff on U.S. soybeans, autos, chemicals and aircraft. And the day after, Trump said the U.S. would consider tariffs on a further $100 billion of Chinese imports.
The countries took a break from tit-for-tat tariff announcements in May, with the U.S. agreeing to hold off imposing them, but before the month was out Washington said it would move ahead with duties on $50 billion of imports.
Tied up in all this was the U.S. case against Chinese telecom technology giant ZTE. It violated an agreement against doing business with Iran and was hit with a seven-year ban on buying U.S. technology. Trump backed off the ban, and ZTE was subsequently fined $1.3 billion. The trade-related case would be echoed in December with the arrest of Huawei Chief Financial Officer Meng Wanzhou in Vancouver on accusations she helped the company do business with Iran in violation of U.S. sanctions.
Over the summer the escalation of U.S. threats and actual tariffs on Chinese imports continued, to the point that they applied to a majority of products from that country. Trump mused about putting a duty on everything from China. Subsequent U.S.-China talks spurred market optimism that was soon dashed.
For Canada it was a long, hot, frustrating summer of talks with the U.S. and Mexico to renegotiate the North American Free Trade agreement. Foreign Minister Chrystia Freeland and her team stood fast on what they called “red line” issues including U.S. demands to do away with NAFTA’s dispute settlement provisions, impose a short sunset clause on the deal and gain broad access to Canada’s dairy market.
Trudeau infuriated Washington at the confrontational Group of Seven leaders’ summit in Quebec, which Trump left early. In the closing news conference Trudeau said “Canadians are polite, we’re reasonable but we also will not be pushed around.”
Trump responded with tweets calling the PM “dishonest” and “weak.” Trump economic advisor Peter Navarro, the leading White House “hawk” on trade, reacted by saying on Fox News: “There’s a special place in Hell for any foreign leader that engages in bad-faith diplomacy with President Donald J. Trump.” Navarro subsequently apologized after widespread criticism.
When Canada refused to budge on Washington’s key demand, chief U.S. negotiator Robert Lighthizer broke off the talks for several weeks and talked only with Mexico. They came to a side deal, focusing on North American content in autos. That agreement was presented to Canada as a fait accompli, pressuring Ottawa to settle quickly on U.S. terms. But talks dragged on for another month until the end of September when a tentative agreement covering all three countries was agreed upon.
Freeland’s persistence on the trade file would make her the Business Newsmaker of the Year, chosen by 81 per cent of editors in a Canadian Press poll. Yet the new deal, USMCA, is still not in force as 2018 comes to a close. The Democratic Party won control of the U.S. House of Representatives in the November midterm elections, and incoming Speaker Nancy Pelosi says “While there are positive things in this proposed trade agreement, it is just a list without real enforcement of the labour and environmental protections.” Trump responded with a maneuver that could leave the U.S. with no deal at all unless Congress passes USMCA, saying he would serve six months’ notice to withdraw from NAFTA.