Key sectors for Canada, Mexico as White House ties tariffs to NAFTA

OTTAWA/MEXICO CITY, March 8 (Reuters) – The White House has tied U.S.
President Donald Trump’s planned tariffs on steel and aluminum imports
to a better NAFTA trade deal, offering a potential 30-day exemption for
Mexico and Canada.

The United States’ two NAFTA partners have both resisted linking the
tariffs to the North American Free Trade Agreement. Here are the main
issues at stake for Canada and Mexico.


Ottawa said on Wednesday linking the tariffs and NAFTA will not improve

the tri-country trade agreement. Canadian Prime Minister Justin Trudeau
said on Thursday there is a “level of confidence” that his country’s
close relationship with the United States will protect it from the

DAIRY PROTECTIONS – Canada’s dairy sector, which includes C$6 billion in
annual farmer milk sales, is protected by high tariffs on imports and
controls on domestic production as a means of supporting prices. It
includes about 11,000 farmers who are concentrated in the vote-rich
provinces of Quebec and Ontario and who have outsized political
influence. Successive Canadian governments have made clear over decades
they will not touch the system and the Liberals have consistently ruled
out changes.

SOFTWOOD LUMBER – Given the strenuous efforts Canada has taken so far to
defend the industry, a climb down seems very unlikely. The lumber
industry is based largely in the provinces of British Columbia and
Quebec, where the Liberals need to maintain support to stand a chance of
retaining power in an election set for October 2019. Official government

statistics show the lumber industry as a whole generated around C$22
billion in GDP in 2015 and accounted for 201,645 jobs.

AUTOS RULE OF ORIGIN – Canada may have more room for maneuver on U.S.
demands for higher North American content for autos produced in NAFTA
nations. The United States wants vehicles produced in the three
countries to have 85 percent regional content, up from 62.5 percent now.
Canada initially rejected the idea outright but has since come up with
proposals to change the way content is calculated. Canada and Mexico
have refused to address a separate demand from Washington that 50
percent of all autos content must come from the United States.

STEEL – Canada is the No. 1 steel exporter in the United States, with 84
percent of its steel exports, worth C$9.0 billion, sent south last year,
according to Statistics Canada. The country exported some 5.8 million
tonnes of steel to the United States in 2017, according to the U.S.
Department of Commerce. But the industry is a relatively small part of
the Canadian economy. Steel represented only 2 percent of total exports

last year. It accounts for about 22,000 direct jobs and supports 100,000
jobs indirectly, said the Canadian Steel Producers Association.

ALUMINUM – Quebec is home to much of the country’s aluminum industry,
thanks to cheap hydroelectrical power. Aluminum accounted for 1.9
percent of Canada’s total exports in 2017 in nominal terms, with 88.6
percent, worth C$9.1 billion, sent to the United States, according to
Statistics Canada. The aluminum industry employs about 10,000 people in
Canada and indirectly supports another 20,000 jobs, according to the
Aluminum Association of Canada.


The Mexican government has not yet reacted to the suggestion that
it could be given a 30-day exemption on the tariffs, with further
exemptions linked to the NAFTA talks, but on Monday, Guajardo rejected
making concessions in the wider trade deal to avoid steel tariffs.

“It is totally ruled out,” that we would cede on issues in the talks or
in other sectors to get an exemption, Guajardo told reporters.

AGRICULTURE – Mexico and the United States traded $42.5 billion in
agricultural products last year, of which $18.7 billion were U.S.

exports south. Mexico is the United States’ third largest agricultural
trading partner.

STEEL – Mexico’s $7.1 billion steel trade with the United States is a
fraction of the total $557 billion in goods traded with its northern
neighbor, much of that underpinned by NAFTA. The Mexican government has
left the door open to retaliation to steel and aluminum tariffs.

One option suggested by Economy Minister Ildefonso Guajardo and backed
by Mexico’s steel industry is to respond with tariffs on the same
products, which could favor Mexico, given that the United States exports
$1.8 billion more steel to Mexico than it imports. Another option, also
floated by Guajardo, is to target politically sensitive products, a
strategy that Mexico has used successfully in trade disputes with the
United States in the past.

AUTOS – Mexico’s auto industry exports to the United States last year
were $97.5 billion, according to Mexican official data. The United
States imported $44.6 billion in auto parts, and exported $20.48 billion
in parts in 2017, U.S. Census bureau data shows.

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