The unthinkable suddenly seems eminently possible after a drama-filled weekend for the U.S.-Canada relationship. U.S. President Donald Trump could impose duties of 25 per cent on auto imports, a move that could wreak havoc on the Canadian economy and cost hundreds of thousands of jobs on both sides of the border.
Until recently, experts had widely regarded President Trump’s talk of auto tariffs as a troubling but relatively remote threat, one perhaps meant to extract further concessions during the NAFTA negotiations.
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But after the White House unleashed a storm of scathing tweets and public statements on Canadian Prime Minister Justin Trudeau following the weekend G7 summit, the prospect of the U.S. actually applying ramped-up duties on all imports of cars and trucks appears much more concrete.
There is a “reasonably good chance” that Trump will impose the tariffs, said Edward Alden, a senior fellow at the Council of Foreign Relations, a U.S. think-tank.
And it is “not impossible” that it will happen as soon as this fall, Alden added during a phone interview with Global News.
Trump is invoking the same national security provision he used for the steel and aluminum tariffs to explore the possibility of raising duties on vehicle and auto-part imports. The U.S. Department of Commerce begun a national security investigation on the matter on May 23 and has until mid-February 2019 to present its findings and recommendations.
However, some believe the results could come much sooner if the White House wants to use the auto tariffs to rally support for the president’s base ahead of the upcoming U.S. midterm elections.
Some 130,000 jobs and billions worth of trade at stake for Canada
In Canada, the auto tariffs would inflict significantly more economic pain than the duties on steel and aluminum.
The auto industry accounts for 130,000 jobs, over 90 per cent of which are located in Ontario, according to the Canadian Vehicle Manufacturers’ Association (CVMA). Indirectly, the industry supports an estimated 500,000 jobs across the country, making up 20 per cent of Ontario’s GDP, or about 0.8 per cent of the Canadian economy.
Canada exported $58-billion worth of cars, SUVs, vans and trucks to the U.S. in 2017, according to data in a recent report by the Peterson Institute for International Economics (PIIE), a Washington-based research institution.
By comparison, the steel and aluminum sectors combined directly employ only about 32,000 Canadians, according to numbers from Statistics Canada. And the two industries accounted for around $14 billion worth of exports in the last twelve months, according to a research note by BMO economists Douglas Porter and Robert Kavcic.
Writing shortly after the steel and aluminum barriers officially kicked in on June 1, Porter and Kavcic wrote: “The bigger concern is the threat of broader trade actions … particularly if this serves as a template for the auto industry.”
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Job losses could be even bigger in the U.S.
In terms of sheer numbers, the job shedding could be even worse in the U.S., according to estimates from PIIE.
Production in the auto sector could dip by 1.5 per cent as a result of the new trade barriers, enough to eliminate some 195,000 U.S. jobs over the course of up to three years, the institute predicted. But the impact on employment could be far worse if Canada, Japan, the European Union and other nations affected by the tariffs decided to retaliate with in-kind tariffs. U.S. production would then fall by four per cent, causing an estimated 624,000 U.S. workers to lose their jobs.
The decline in industry output would be due to lower U.S. exports, but also weaker domestic demand for car and trucks, which would become more expensive as a result of the tariffs, the PIIE report said.
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Little opposition to auto tariffs in the U.S.
Despite the dire predictions on what the tariffs would do to U.S. jobs, there’s little that currently stands in the way of President Trump on the issue, according to Alden.
U.S. unions, for one, have lent muted support to the current Department of Commerce investigation.
U.S. business is also unlikely to put up much of a fight, Alden said.
“Business is very concerned, but they also just received an enormous windfall as a result of the tax cuts,” he told Global News.
The Trump administration cut the U.S. corporate tax rate from 35 per cent to 21 per cent as part of the $1.95-trillion tax overhaul.
And with the broader U.S. economy roaring and poll numbers showing the president remains popular, “the Republican party is effectively Trump’s party,” Alden noted.
“Right-thinking Republican leaders who have long championed freer trade” were supposed to make the U.S. Congress a powerful firewall against the president’s excesses on trade policy, Alden mused in a blog post after the G7 meeting.
Instead, House Speaker Paul Ryan and Senate Majority Leader Mitch McConnell and others “have set aside their principles and fallen meekly into line behind Trump,” he wrote.
A recently introduced bi-partisan Senate bill that would pare back the president’s authority to impose trade barriers based on national security grounds has “no chance” of mustering the votes required to withstand a presidential veto, Alden told Global News.
And even the hope that cooler heads in the Trump administration would be able to rein in the president has now arguably faded, according to Alden.
“The president’s style is, if he gets hit, he hits back harder,” he said. “And unless there’s something that stops that — the Congress, massive pressure from business, or a seriously negative reaction in the markets — I think he’s going to continue to escalate this trade conflict.”