American importers of metals from Canada and Mexico gain relief from tariffs

TIMES HAVE been tough for Riverdale Mills Corporation, a company based in Northbridge, Massachusetts. In June last year the Trump administration imposed tariffs of 25% on steel imported from Canada, which accounted for half the firm’s supply. As its business involves transforming steel rods to supply 85% of North America’s lobster traps, and 31 miles (50km) of security fencing along America’s border, its costs soared. “We were very, very disappointed,” said James Knott, its chief executive.

Disappointment has given way to delight. On May 19th President Donald Trump declared that steel and aluminium from Mexico and Canada no longer posed a threat to America’s national security, and the next day the tariffs were no more. “This is just pure good news for Canadians,” said Justin Trudeau, Canada’s prime minister.

It was also excellent news for American consumers of steel. Faced with a lack of steel of similar quality from American suppliers nearby, and the expense of shipping from those farther away, Mr Knott had stuck with his Canadian suppliers, which hit profits and forced him to trim his workforce. Although he kept prices steady for his core products, some customers decamped anyway, worried that price rises were coming.

The tariff cuts will relieve strain for metal importers immediately. But the effect on the overall market may be muted, says Michael Widmer of Bank of America Merrill Lynch, an investment bank. Before the tariffs Canada and Mexico supplied only around 15% of America’s combined steel and aluminium imports. Most of the rest still faces trade restrictions. For steel the relief will be “very narrow”, he says.

Even that narrow relief will leave trade between the United States and its North American neighbours less free than before. The deal between the United States, Canada and Mexico allows for tariffs to be reimposed without notice if imports of a particular product surge. And it includes new, as yet unspecified, enforcement provisions, intended to ensure that metal from other countries does not sneak into the United States. That is meant to address concerns about Chinese exports depressing American prices through the back door.

But it is better for Canada and Mexico than the quotas the Trump administration had been demanding. Those could have blocked trade altogether, even if American supply had fallen short. And the deal’s political significance goes well beyond the limited quantities of metal imports it covers. Mr Trudeau called it a “big step forward” towards ratifying the USMCA, the deal between the United States, Canada and Mexico negotiated to replace NAFTA. Though Democrats in Congress are likely to demand further changes first, its chances should be helped by the silencing of Canadian and Mexican complaints.

The news does not mean that Mr Trump is no longer, as he put it, a “tariff man”. On May 17th a presidential proclamation gave Japan and the European Union up to six months to negotiate away the (imaginary) threat posed by their cars and car parts to America’s national security. On May 10th American tariffs on $ 200bn of Chinese imports increased from 10% to 25%. All this means Mr Knott’s luck has turned. As he points out, all tariffs are “an exploitation of the consumer”. But now it is not his firm that is feeling the worst of the squeeze.