And so, the trade wars have begun...
In slightly more than a strongly-worded email Canadian PM Justin Turdeau exclaimed his indignance at the Trump administration's decision to impose tariffs on Canadian steel and aluminum imports, saying it is an "affront":
“Let me be clear, these tariffs are totally unacceptable,”
Trudeau noted that US has a $2billion steel trade surplus with Canada and said it was "inconceivable" that Canada could be seen as a security threat to US.
With that he announced retaliatory tariffs against the US.
Canadian Foreign Affairs Minister Chrystia Freeland announced “dollar-for-dollar tariffs for every dollar levied against Canadians by the U.S.,” starting July 1 that will remain in place as long as U.S. tariffs do.
Canada is set to publish a list of tariffs - one set at 25% and one at 10%
As Goldman explains, the decision to impose tariffs on Canada and Mexico (and now seeing Canada's response) suggests that prospects for a NAFTA agreement in the near-term are fading.
The Administration’s negotiating stance is often unpredictable so there is a risk of over-interpreting any single event. That said, this represents another signal that prospects for a near-term NAFTA deal are fading, just a few weeks after it had appeared fairly likely that a “skinny” agreement involving the auto sector might be reached.
However, Goldman note that the incremental inflation effect of these tit-for-tat tariffs should be small. We estimate that adding Canada, Mexico, and the EU to the countries facing a tariff of 25% on steel and 10% on aluminum could boost core PCE by roughly 1bp. Imports from NAFTA and EU countries make up just under half of steel and aluminum imports.
Finally, in his Q&A Trudeau made it clear that "Canada's relationship with US is deep and complex" but warned that "US will harm its own people with such measures."