President Donald Trump's latest trade salvo over steel and aluminum landed squarely in the middle of Nafta talks, overshadowing efforts by his own negotiators and those from his biggest export markets to update America's most important free-trade agreement.
After a day of will-he-or-won't-he chatter, Trump announced Thursday he intended to slap tariffs of 25 percent on steel imports and 10 percent on aluminum imports. Specifics are unclear, including whether some countries may still be exempt, but the implications rippled through the seventh round of talks on the North American Free Trade Agreement in Mexico City.
Canada threatened to fire back, in some of its toughest language against the Trump administration since NAFTA talks began last year, and a person familiar with Mexico's position said the nation plans to do the same. Canada is the top provider of both U.S. steel and aluminum imports, while Mexico is the fourth-biggest steel provider. Various industry groups condemned the U.S. move and warned it would start a trade war.
While U.S. data shows NAFTA plays only a partial role in trade of the two metals, the effect could be much broader. The regional content requirement for cars, for instance, is arguably the biggest sticking point in work to update Nafta, including whether and how to track the source of steel used to build them. Work to find a solution already was delayed this week when Trump's lead negotiator on the issue was called back to Washington.
"These tariffs are yet another example of the highly protectionist America First agenda playing out in real time," said Adam Taylor, a principal at Export Action Global and former Canadian trade official. "That they come right in the middle of NAFTA negotiations is worrisome as Mexico and Canada see modernizing as enhancing and upgrading NAFTA while the U.S. views the NAFTA2.0 talks as a way to erect new barriers."
Representatives of the Canadian steel and aluminum sectors each said they're holding out hope Canada will be exempt. The president of the United Steelworkers union, Leo Gerard, made a similar request, and Mexican Economy Minister Ildefonso Guajardo traveled to Washington on Wednesday and met with Commerce Secretary Wilbur Ross to ask for the same exclusion and make clear that the nation would retaliate if hit with tariffs — echoing the plans of the European Union.
The United Steelworkers supported new tariffs, Gerard said in a statement, but "it will be critical to focus attention on the countries that have created the problem," not all countries. "Any solution must exempt Canadian production," Gerard said.
In terms of relations, a 2009 dispute — when Mexico imposed retaliatory tariffs on about 90 American products totaling $2.4 billion worth of annual exports, serves as an example of what the nation can do in response to a U.S. move — according to a person close to the Latin American country's position, who asked not to be named.
In the spat that year over trucking, Mexico took retaliatory action in response to the U.S.'s refusal to implement a cross-border trucking plan agreed to under NAFTA. That helped contribute to a 26 percent decline from the previous year in American agricultural exports to Mexico and affected products including wine, toothpaste, pork, onions and mineral water.
The seventh round of NAFTA talks began Feb. 25 and concludes March 5, when the cabinet figures leading talks for the three countries are expected to meet. Negotiators have wrapped up four chapters of about 30 so far, and talks could conceivably run for the rest of this year and even into 2019.
Steel and aluminum don't overwhelmingly use NAFTA. While the U.S. bought $25.6 billion in iron, steel aluminum and articles of the metals in 2017 from Canada and Mexico, just 22 percent of it was traded under NAFTA, according to U.S. International Trade Commission data.
Canadian Foreign Minister Chrystia Freeland fired back at Trump's threat Thursday, calling it "absolutely unacceptable" to include Canada in steel and aluminum measures and underlining that the country is also the top buyer of U.S. steel.
"It is entirely inappropriate to view any trade with Canada as a national security threat to the United States," she said in a statement. "Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers."