Even this U.S. tariff advocate is urging Canada and the U.S. to drop retaliatory duties

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WASHINGTON, D.C. — Canada-U.S. trade tensions are at a fever pitch after U.S. President Donald Trump unveiled a series of executive orders on Tuesday banning some alcoholic beverages and dairy products from being imported to the United States.

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Trump’s announcement came in response to Canadian retaliatory tariffs that went into effect this week on nearly $28 billion worth of U.S. imports, which were part of a tit-for-tat escalation in the trade war between the two countries.

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National Post reached out to Charles Benoit, trade counsel for the Washington-based Coalition for a Prosperous America, a U.S. advocacy group that champions tariffs and industrial protection. Benoit argues that more home market protection — not freer trade — would benefit both the United States and Canada.

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The following Q&A has been edited and condensed for clarity.

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From your perspective, why did the Canada-U.S. trade talks break down?

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Charles Benoit: What they’ve really coalesced around is harmonization of the steel, aluminum, and automotive tariffs. Ambassador (Jamieson) Greer was explicit about this in his big interview with CBC — that’s the U.S. line. And Prime Minister (Mark) Carney has made this about Canada’s ability to have other trade deals, which lines up with what Greer was more specific about: harmonized steel, aluminum, and automotive.

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Those were the three big Section 232 actions that were launched back in the first Trump administration, so it makes sense why those three sectors were chosen.

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I think the big thing to look at is — what has Mexico done that Canada hasn’t? Mexico’s not negotiating any new FTAs (free trade agreements). Canada’s still negotiating an FTA with India, for example.

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At one point, the language of the (now scuppered Canada-U.S. interim deal was), “At least consult with us before you commit to duty-free cars, steel and aluminum tariffs in new FTAs,” and that seems to have been too far for Carney.

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If you had to really pick one thing that caused Canada to walk away, I think it’s that. I think that they wanted the ability to offer unlimited duty-free on steel, aluminum, and automotive, specifically in their India FTA.

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Your coalition campaigned against a prospective deal to reduce U.S. tariffs on Canadian downstream aluminum. Why?

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A core constituency of our group is metal fabricators. We represent all sorts of industry and also agriculture, but we’ve got this backbone of metal fabricators.

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At the end of the day, cross-border price competition doesn’t work when metal costs a lot more in the United States. For aluminum, it’s off the charts. We made the decision as a country to tariff primary aluminum, and as a result, aluminum is a dollar a pound more in the United States than in Canada or Mexico. You just can’t compete with that spread.

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One of the things that was on U.S. offer in the Canada deal was reducing the tariff on downstream aluminum goods. From what was reported, the tariff concession went from 50 per cent to 25 per cent for Canadian aluminum goods.

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If an aluminum extruder, or anyone working with aluminum in America, is paying a dollar a pound more, 50 per cent on the downstream product — on an aluminum billet or can sheet or whatever — just barely gets you to even competition with Canada and Mexico, because you’re paying so much more for the metal.

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Cutting the tariff to 25 per cent for Canada — and if Canada got that deal, Mexico would get the deal — would have been immediate offshoring of all downstream aluminum fabrication in America. So, 100,000 jobs gone. That’s what drove us to be a vocal opponent.

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Do you see tariffs on Canada primarily as leverage to win concessions from Ottawa, or as long-term protection for U.S. industry?

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The point is not to get concessions from Ottawa. Chasing exports is a bad policy.

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To win market access, you’re inevitably sacrificing one producer’s home market sales for another producer’s export sales. Any time you win market access for one of your producers, the other country inevitably demands the same. You’re trading away one domestic producer’s ability to sell in their own market for another producer’s ability to sell to export.

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Take Canada dairy: I don’t want to see Canadian dairy farms close so that Stellantis can maybe get another few years out of that Brampton facility for exports. It’s a terrible trade for Canada.

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I’m trying to explain why both sides lose from free trade. Free trade drives global consolidation. If Canada gives up more dairy access, the dairy farmers aren’t going to win. They’re just going to go out of business immediately.

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In the same way, when aluminum is a dollar a pound cheaper in Canada, if we give up access on aluminum extrusion, we’re just offshoring our guys. That’s all it is. It’s consolidation to where costs are lowest, and that’s a race to the bottom that hurts both countries.

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But many Canadian firms have U.S. plants, and U.S. manufacturers rely on Canadian inputs. Why target Canada rather than focusing tariffs on China or other non-market competitors?

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We do not support retaliatory tariffs. We support sectoral tariffs for protection. We don’t support the 338 action. We don’t want that. It’s making reshoring more difficult, and a lot of our members are being hurt.

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No manufacturer is making investments because they expect retaliatory tariffs to stick around. They freeze up economic activity, or they cause some sort of rush which then leads to a lull. It’s all bad.

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Canada’s retaliatory tariffs are really bad. Appliances are a big one. Canada doesn’t make appliances. Why are they tariffing American appliances? It comes at a really bad time for American appliances because if you walk into a Costco, a lot of them are from China or they’re Chinese brands from third countries.

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The tariff war is bad. We do not support retaliation. We don’t support chasing exports.

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Is the Trump administration’s approach a negotiating tactic, or a broader rejection of the old North American free-trade model?

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I really lament the situation. Canada has been badly served by free trade, like the United States. They’ve both been done terribly.

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Automotive is the easiest example. In the United States, we were down to only half the cars sold here being assembled here. Canada has lost almost 50 per cent of its vehicle assembly in just the last decade. Canada has similarly lost over a million vehicles, which is way more significant for Canada.

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We’re both losers here. The U.S. decided enough’s enough. Now, that’s really tough for Canada. Canada has lost so much to Mexico, and then to have the U.S. say, “Well, we’re done. We’re tired of losing” — it’s a very, very tough position for Canada to be in.

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The (United States Trade Representative) was willing to give Canada a better deal on automotive. Reportedly, the deal that was on offer to Canada was the same 15 per cent that applies to Europe, Korea and Japan, but with a carveout for U.S. content. That’s technically a better deal. It probably wasn’t enough to sustain vehicle production in Canada. I accept that. So, that’s a really tough spot.

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If I’d been Carney, I would have said, “Look, if we accept this deal, we’re just losing all vehicle assembly. We can’t do that.” I would have asked for something like 600,000 cars a year, where it’s a one-to-one number and it’s duty-free.

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That would have been the move for Canada. We didn’t oppose the automotive deal with the U.K. last year, which had a similar quota structure. With quotas, you understand exactly what we’re giving up and what we’re gaining.

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So what should Ottawa do now?

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Dial it way down.

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I would have told the provinces to knock it off with the formal (alcohol) ban, because that’s clearly really irritated (the United States Trade Representative), and I understand it. California wine growers are not anyone to be trifled with.

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I would have sought a quota deal for as many units — whether it’s 600,000, 700,000 — as they could be truly duty-free to the U.S. as possible. That’s what I would’ve done if I was Carney. I think Canada would be in a much better place.

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Canada could get so many economic wins by capturing its own market. Stelco is Canada’s second-largest steel mill, and most of the Canadian steel market belongs to overseas Asian imports. Why doesn’t Canada try to get some of that back for its own mills?

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Hyundai and Kia, the European OEMs, do a lot of business in Canada, but have no Canadian assembly. If I were prime minister, that would be unacceptable.

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You’ve got a top Canadian steel mill and a top Canadian steel fabricator begging the government: “We’re dying from Asian imports. Why don’t we try to get some of our own market?” All these new pipelines, they’re going to be made with Chinese steel. If it’s not Chinese, it’ll be Korean.

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What would an off-ramp from the current tariff conflict look like?

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I would support the president just saying, “Canada’s had enough,” and removing the whole 338 action right away. I don’t think it’s helping anything.

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I have the same advice for Canada: drop the retaliation. Unilaterally drop it. I know it’s probably politically harder for Carney to do, but I do kind of think it’s a mess of his own making.

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Both sides should just unilaterally decide that they’re above this mess and drop retaliatory actions.

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The U.S. needs its sectoral tariffs, and much like with U.K., a quota deal on autos seems reasonable for both countries. I would urge Canada to hold the line on dairy.

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You are a tariff advocate, but you oppose some tariffs, including the U.S. tariff on primary aluminum. How do you decide where tariffs make sense?

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You take everything product by product.

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For aluminum, I think we should abolish the tariff on primary aluminum. We’re not getting the smelters without a long-term government power deal. Or unless the government builds them.

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That’s the only reason we ever had a competitive domestic industry — in the 1940s, the government built 10 smelters, and they became Reynolds Aluminum and Kaiser Aluminum and so forth.

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Quebec got it right. They offer the power deals, which they can do because they own the hydro. The Massena smelter in New York only exists because it gets a public-power deal from the New York Power Authority, which owns the dams.

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So, for aluminum, no tariffs on primary. For steel, the tariffs are working, although there’s always room for improvement. The administration needs to roll up its sleeves and dive into these things product by product.

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Critics say tariffs become permanent protection for incumbent companies without necessarily delivering investment or competitiveness. What safeguards would you want?

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Domestic market competition is so important.

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The steel tariffs are easy because we’ve got competition up and down. Thanks to electric-arc furnaces and mini-mills, we’ve got over 100 market actors just in primary. And thousands of fabricators. We’ve got a competitive market in steel, and we don’t need to offshore metal fabrication for any metal.

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Primary aluminum is the other side of the spectrum. That’s one where competition policy matters. You need a domestic competitive home market. That’s the goal. But it’s a long ways off.

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I want an abundant, prosperous country, so I look at real output. For aluminum, we’re at a 75-year low — less than 700,000 metric tons of aluminum smelted. Four smelters. That’s terrible, and it’s not getting better. As for steel, how many tons of steel are melted and poured in the U.S.? Down over a decade. How many cars have we assembled? A million less.

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Those are the hard numbers. You have to look sector by sector.

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What is your broader vision for Canada-U.S. trade?

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Top line, I would love to see both countries pursue economic self-reliance.

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We got along extremely well in the latter half of the 19th century and the early 20th century when we both kind of agreed that we don’t want to trade with each other. That was not an antagonistic time. It’s modern global rules-based trade that creates all this antagonism, where people are trained to think of tariffs as a sanction.

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Both countries should pursue economic self-reliance. To the extent we have trade deals, I think they should be managed trade — outcome-focused. Like the U.K. automotive deal.

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Canada has done us a solid by offering the template. In NAFTA and USMCA, people don’t appreciate this, but the U.S. and Mexico went duty-free on everything. Canada didn’t, mainly because of dairy and supply management.

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That’s why, if you look at the text of USMCA, there’s an Appendix 1. Canada said a hard no on supply management. Because Canada kept milk, and I believe eggs and a couple of things; the U.S. kept its sensitive things like sugar and peanuts. We still have a hard quota on Canadian peanut butter imports, for example, just like Canada has its dairy quota.

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That’s great. That’s the model. To the extent we have agreements managing trade, it should look like USMCA Appendix 1.

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National Post

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