US reaches deal with Canada, Mexico to lift steel, aluminium tariffs

The deal clears a major obstacle to congressional passage of President Trump's new North American trade deal. Photo / AP

The United States has agreed to lift its tariffs on industrial metals from Mexico and Canada, clearing a major obstacle to congressional passage of President Trump's new North American trade deal.

The bargain calls for Mexico and Canada to adopt tough new monitoring and enforcement measures to prevent Chinese steel from being shipped to the US via their territory. US tariffs are to be lifted in 48 hours.

Canadian Prime Minister Justin Trudeau spoke with President Donald Trump on Friday, their third such call in about a week. They discussed the tariff issue, as well as relations with China and the United States-Mexico-Canada trade agreement, according to a Canadian read-out of the call.

In remarks to the National Association of Realtors, Trump said the tariffs deal should pave the way for lawmakers to act. "Hopefully Congress will pass the USMCA quickly," he said.

Citing national security considerations, Trump imposed tariffs on steel and aluminium in March 2018 in response to what the US called a flood of excess Chinese commodities onto global markets. The administration blamed Chinese overproduction for depressing global steel and aluminium prices, driving many US mills out of business.

In talks over eliminating the tariffs, US officials at first tried to get their North American partners to accept quotas on their steel and aluminium shipments. But both Canada and Mexico, neighbours and close US allies, had bristled at being labelled national security dangers and rejected that demand.

By avoiding quotas, the deal announced Friday marks a win for the two countries while also addressing Trump's worries about Chinese steel and eliminating a major stumbling block to Congress approving the replacement to the North American Free Trade Agreement, the president's signature trade deal.

Senate Republicans, including Sen. Charles Grassley of Iowa, the powerful Finance Committee head, had said they would not approve the North American trade deal while the tariffs were in place.

Iowa farmers were among the casualties of Mexican retaliatory tariffs, which cut deeply into US agricultural exports.

Announcement of the tariffs deal came hours after the president gave the European Union and Japan six months to agree to limit their auto shipments to the United States or face the threat of US tariffs.

Trump's decision followed a Commerce Department report that concluded rising imports of foreign autos and auto parts threatened US automotive research and development capabilities and thus impaired national security.

President Donald Trump at first tried to get Canada and Mexico to accept quotas on their steel and aluminium shipments, which was rejected. Photo / AP

"American-owned automotive R & D and manufacturing are vital to national security," Commerce Secretary Wilbur Ross found.

The president threatened last year to hit foreign cars and parts with a 25 per cent tariff but agreed to defer a decision while negotiations with US trading partners proceed. Those talks have made little headway,

Friday's auto tariffs announcement sets the clock running on another key trade issue at a time when Robert Lighthizer, the chief US trade negotiator, is engaged in trying to reset trade relations with China and secure congressional approval of a new North American trade deal.

"If agreements are not reached within 180 days, the president will determine whether and what further action needs to be taken," a White House statement said.

The decision signals the president's support for a system of managed trade, with the federal government setting limits on the amount of foreign products that American businesses and consumers may buy rather than allowing market forces to operate unfettered.

The approach harks back to the voluntary export restraints the US negotiated with Japan during an earlier period of trade tension in the 1980s.

"I don't think there is any more doubt about it, the president is far more attracted to managing imports than expanding exports," said Rufus Yerxa, president of the National Foreign Trade Council. "The entire US auto and auto parts sector understands why it needs a global strategy, but the President clearly prefers 1980s style protectionism."

Unlike his confrontation with China, Trump is virtually alone in favouring tariffs on all imported cars. The Automotive Policy Council, representing the Big Three American automakers, said Friday that tariffs "would weaken global competitiveness and invite retaliation from our trading partners, which could harm jobs and investment in the US"

John Bozzella, president of Global Automakers, representing foreign carmakers operating in the US, added: "No automaker or auto parts supplier asked for this 'protection.' We are headed down a dangerous and destructive course."

The industry's major union, the United Auto Workers, has supported "targeted" tariffs. But with members in Canada, the union does not back the president's global approach, which would interfere with border-crossing North American supply chains.

The administration argues that US automakers' declining share of the domestic market coupled with foreign trade barriers is eroding US innovation.

The US imported passenger vehicles worth US$191.7 billion ($293.8b) last year, up 15 per cent from 2014, according to the International Trade Administration.

Foreign companies supplied the US with an additional US$158.8 million of parts, up 9.4 per cent over the same period.

The president last year rejected the EU's offer to drop its auto tariffs to zero if the US would do likewise. The US maintains a 2.5 per cent tariff on foreign cars, lower than the EU's 10 per cent levy.

But the US imposes a 25 per cent tax on imported light trucks, the most profitable market segment for American companies.