At loggerheads: how a Canada-US trade war could give us all splinters
Anna Isaac
Updated
It's all in the grip when it comes to handshakes, and trade spats - This content is subject to copyright.
Canadian Prime Minister Justin Trudeau has cranked up his trade spat with the US - a dispute that could have significant ramifications for the UK.
Speaking on Wednesday, he said he would ban the Canadian armed forces from buying aircraft from the US aviation giant Boeing, if President Donald Trump goes ahead with plans for an eye-watering 300pc tariff on Bombardier aircraft.
The current trade battle broke out last month when the US Department of Commerce ruled that products from Canada-based Bombardier could be subject to sky-high tariffs in response to a complaint from Boeing.
The US manufacturer had argued that Bombardier's smaller C Series jet had benefitted from unfair state subsidies from Quebec and the UK Government. More than 4,000 jobs hang in the balance in Northern Ireland, where the wings for the C Series are made.
Yet tensions have long existed between Canada and the US, despite sharing a trade agreement between themselves and Mexico for the past 23 years.
Well before the North American Free Trade Agreement (Nafta) was brokered in 1994, the US complained that Canadian lumber was unfairly subsidised and so sought to impose tariffs of varying levels.
Successive US administrations have also argued that Canadian milk producers have lobbied to hit US dairy farmers with tariffs of up to 292pc on their products.
Nafta was intended to offer frictionless trade by scrapping tariffs on products, particularly from the agricultural and automotive industries. By 2015, it was estimated to cover more than $1 trillion of trade.
During his campaign for the White House President Trump described the deal as a "disaster" and promised to renegotiate. In April of this year, he started doing just that; in the same month he slapped a 24pc tariff on Canadian softwood imports
The 'worst trade deal ever'?
If the battle of the planemakers is the hot war, then milk and lumber is the cold one. Lumber in Canada mostly comes from government-owned forests and is milled by private companies, while in the US it comes from largely privately owned land.
There are suggestions on the US side that the Canadian government does not charge a true market rate to those gathering the lumber, in effect subsidising the wood. Part of what is driving the renegotiation of Nafta and the mounting tensions in other areas of trade is that one of the Trump administration's great obsessions is to reduce the US trade deficit overall, particularly with Mexico, in order to put "America First".
Three-way tensions were already heightened by Trump's determination to build a wall to create a physical boundary between the US and Mexico.
The president was also deemed to have further undermined Nafta when he criticised US car giant Ford for planning to build a plant in Mexico. Ford scrapped this plan, opting instead to move the project to China - despite Trump's rhetoric about the need to create US jobs.
Nafta, it seems, still hangs in the balance for Trump. On Wednesday he said: “It’s possible we won’t be able to make a deal, and it’s possible that we will. We’ll see if we can do the kind of changes that we need. We have to protect our workers. And in all fairness, the prime minister wants to protect Canada and his people also. So we’ll see what happens with Nafta, but I’ve been opposed to Nafta for a long time, in terms of the fairness.”
The president said on Wednesday that he would consider bilateral deals with Canada and Mexico, should the Nafta renegotiation fail.
What is Trudeau doing about this?
After meeting with President Trump on Wednesday, prime minister Trudeau was clearly still talking tough on the aviation battle.
“I highlighted to the president how we disagree vehemently with Commerce’s decision to bring in countervailing and anti-dumping duties against Bombardier, that we feel this is not something that is warranted and quite frankly something that we look very negatively upon,” he said.
Trudeau added that he is “ready for anything", when it comes to renegotiating Nafta. As indicated at the press conference afterward, this could include bilateral deals between the US and Canada, and Canada and Mexico.
On Thursday Trudeau met with his Mexican counterpart, President Enrique Pena Nieto, in order to discuss progress on the Nafta renegotiation.
What does this mean for the UK?
When it comes the clash between the US and Canada on aviation, the UK is the piggy in the middle. Both Boeing and Bombardier are major employers.
In Northern Ireland Bombardier employs 4,200 people. However Boeing employs 16,500 people in its supply chain in the UK - something it recently pointed out to prime minister Theresa May.
Ms May has already hinted that her response to Boeing could be similar to Mr Trudeau's this week: no more Boeing orders from the military.
The Department of International Trade is currently considering the possibility of joining NAFTA in a 'No-deal' post-Brexit scenario. The trading group could be a tempting prospect when Britain, the US, Canada and Mexico account for more than 30pc of the entire global economy.
But these mounting tensions between US and Canada bring that idea into question, and as aviation becomes the proxy war for Nafta renegotiations, things could become very uncomfortable indeed for the UK.
