Canada’s Trade Retaliation Against The U.S. Could Exceed $3 Billion: Report

Canada would be entitled to trade retaliation measures of US$3.2 billion if U.S. President Donald Trump’s proposed tariffs on steel and aluminum are found to have violated World Trade Organization (WTO) rules, according to a new report issued by the Washington-based Peterson Institute for International Economics.

Relying on data from the Trump administration’s own models, the report found that Canada would endure the toughest trade losses under the proposed steel and aluminum tariffs. Of a total US$14.2 billion in losses imposed on partners, the European Union would take the next largest hit at US$2.6 billion followed by South Korea and Mexico at around US$1 billion each, according to the institute’s report.

China – targeted by Trump as the main culprit in flooding the world with cheap steel and aluminum – would suffer only US$689 million in estimated trade losses. Canada, as the nation most harmed by the U.S. tariffs, would be entitled to the largest retaliation at US$3.2 billion, according to the report.

Of course, the U.S. has to first impose the duties on steel and aluminum imports. Then Canada would have to challenge the country’s claim that the tariffs are justifiable under the “national security exception” in the General Agreement on Tariffs and Trade (GATT). Should a WTO panel rule against that reasoning, the U.S. would be required to amend its tariffs. If it refuses, Canada can request compensation and the WTO can establish an “authorized retaliation” in the amount of $3.2 billion.

Once the amount of lost trade is established, Canada would have discretion to draw up a list of which U.S. products to target. These items can be selected according to economic or political motives. However, WTO authorized retaliations are rare. The WTO has established them in fewer than 15 disputes since 1995. But Canada was authorized a couple of years ago to retaliate to a limit of US$1 billion against the U.S. in a case involving regulations on rules of origin labelling placed on beef products. But the U.S. dropped the regulations before the retaliation occurred.