Why the US has back-peddled on steel and aluminium tariffs

The US administration backed off on imposing tariffs on steel and aluminium imports from Canada and Mexico on Friday, as it simultaneously agreed to delay planned levies targeting carmarkers in the EU and Japan.

The North American Free Trade Agreement (Nafta) was dissolved by President Trump last year, and plans to replace it with the United States Mexico Canada Agreement (USMCA) were put on hold in March 2018 after the US resurrected a Cold War-era trade law that raised tariffs of 25% on steel and 10% on aluminium.

However, in a move that will hearten the US manufacturing industry, the levies have now been reversed, resuscitating the prospect of the USMCA, or an equivalent, being ratified. “No quotas were agreed to replace the levies, as Washington had originally sought”, says the Financial Times, although a new monitoring system could opt to reimpose tariffs on certain products.

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In an interview with Canadian state broadcaster CBC, Canada's Foreign Minister Chrystia Freeland said: “We were very clear that as long as the 232 tariffs were there it would be very, very hard for us to ratify the new NAFTA, and that is why we did not table the legislation. Now that that big obstacle is lifted, full steam ahead.”

The moves mark a thawing of previously aggressive US trade policy towards traditional allies following decades of free-trade orthodoxy, and come in response to pressure on Washington to bolster the domestic industry amid the recent ratcheting-up of tensions in the US-China trade war.

According to the New York Times, “the actions remove the threat of an all-encompassing global trade war and allow Mr. Trump to focus on pushing China to agree to the United States’ trade terms”.

They also agreed to prevent the shipment of aluminium and steel products made outside of Canada and the US to one another, a measure that appeared directed against China.”

The BBC suggests that “trade peace in North America might even strengthen his hand in negotiations with China”.

“Few weeks have shown more clearly how the president rejects the free trade gospel long favored by both Democrats and Republicans”, the Washington Post points out.

“The businessman president... backs the active use of government power to counter what he sees as market distortions caused by other nations’ trade barriers and industrial policies.”