Steel and aluminum tariffs should be worrisome for companies and investors alike, but the big question that everyone has on their minds now is, what does this mean for NAFTA?
That question likely won't be answered anytime soon. In a tweet Monday morning, Trump called out Canada: "We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for U.S.A. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed. Also, Canada must treat our farmers much better."
Threatening to remove tariffs only if the administration gets what it thinks is a good deal from NAFTA surely won't go over well with Canada and Mexico. (And the United States has a trade surplus with Canada, not a deficit, according to the Office of the United States Trade Representative.)
Still, Leblond doesn't think these tariffs will impact discussions, as negotiators likely are focused more on technical and legal issues right now than steel. Also, when the U.S. slapped a 20.8 percent tariff on Canadian lumber producers for softwood lumber imports, NAFTA talks kept going. (Canada did take its fight with the United States to the World Trade Organization, though.)
However, it certainly doesn't help things, Curtis said, and could make negotiations much more awkward and tense. Canadian foreign minister Chrystia Freeland, who is part of the negotiating team, said sternly that these tariffs were "absolutely unacceptable" and that Canada is prepared to "take responsive measures to defend its trade interests and workers."
Prime Minister Justin Trudeau echoed Freeland's comments, adding that "any disruption to this integrated market would be significant and serious."
Some market analysts do foresee a grave threat to NAFTA in Trump's tariff move. But if Canada and other countries do indeed retaliate with tariffs of their own and a trade war begins in earnest, then whether NAFTA stays or goes could ultimately be of lesser importance. It could upend global trade as we know it, Leblond said. He's particularly concerned about Trump using a national security excuse to impose tariffs.
Avery Shenfeld, chief economist at CIBC Capital Markets, said it's a double-edged sword in terms of the NAFTA negotiations. Unless Canada gains an exemption, a war of words and actions on trade isn't a helpful backdrop for reasoned negotiations. But it also helps satisfy Trump's protectionist voting bloc, perhaps easing the pressure on the White House to take a hard line on the NAFTA deal.
These sorts of disputes underscore why Canada believes that the appeal process under NAFTA is a critical piece of the puzzle. The Trump administration wants a deal that excludes that provision, but without it Canada can face spurious rulings against its exports even with a "free trade" agreement in force, Shenfeld said. "The latest claim, that U.S. national security is imperiled by the use of Canadian steel or aluminum in U.S. manufacturing, seems baseless, considering that Canada has been America's steadfast ally," he said.
"If everyone can now say we're going to impose tariffs because we need to protect what's important and use national security as a justification, then everyone will lose," Leblond said. "[Canada] could put a ban on California wine; China could impose constraints on intellectual property rights or innovation. The fear is that it will undermine the WTO process, and for what? To protect a small portion of U.S. manufacturing jobs?"