[CANADA] Tariffs, Retaliation, and the Road to the 2025 IE Canada Summit

Machine Operated Script:

Warrington Ellacott  00:05

Good afternoon, everybody. It’s Warrington Ellicott from the Canadian Association of importers and exporters, and we’re here once again on the simply trade pod to talk about Canada and all things good Canada. And today I’d like to welcome my good friend, will Pellerin, our returning champion from Macmillan in Ottawa, good to see you will great being here. How are things going

Will Pellerin  00:30

wild, wild, but good, always, never a dull moment we

Warrington Ellacott  00:34

were we were just chit chatting before we used to hit the record button here, the list of topics to discuss keeps getting longer and longer the therapy sessions that we offer all of you on radio and TV today are getting getting more comprehensive. All right. Well, let’s get started. I think the objective we we were thinking about today was try to give the folks on the pod just kind of an overview from the Canadian lens of where we think we are and perhaps where we think we’re going. So why don’t we just we’ll get into it here will and we’ll talk a little bit about what we think has transpired over the last several months. And I think the first and most prolific tariff was the IEEPA tariffs, right? And major implications both on the Canadian side and the Mexican side, for sure, and that seems to be coming to a head on November 5, correct?

Will Pellerin  01:26

That’s right. Supreme Court, United States will be reviewing those tariffs.

Warrington Ellacott  01:30

Any bets you’re going to place a bet, what

Will Pellerin  01:34

I think ultimately, my my answer going jump right to the end is it probably doesn’t matter much. And it probably doesn’t matter much, because the Trump administration has a lot of other tools and it’ll be playing whack a mole for the foreseeable future.

Warrington Ellacott  01:48

Yeah, I guess that’s right. And you know from the Canadian lens, most of the retaliatory tariffs that were originally placed on articles in Canada have been removed. Some remain and some are sticky, related to steel products. And I know some of your clients have been impacted, and some of our members, of course, and that’s relating to non and then, of course, Canada imposed some tariffs on non FTA partners as well, which was new. And maybe you can help the listeners understand what that what that really means, right?

Will Pellerin  02:17

So there’s lots going on here. So you’re absolutely right, if we take a step back and just kind of do a lay of the land. Of course, it all started with the IEEPA tariffs on the basis of fentanyl trade by Mexico and Canada. Ultimately, those tariffs that are now increased to 35% are slightly less relevant in the general course, because the US provides us with that exemption. Now for usmca originating goods, and by now, most exporters have found a way to qualify their goods, right, right?

Warrington Ellacott  02:53

But the key thing, though, is that the use the Americans use of the 232, 32 provisions, is what’s causing Canada, I think, the most consternation, right? And these, these tariffs are based on a nurse and, again, a national security basis, but it’s more widespread across multiple sectors that are important to Canada. And then even this week, there was even more incremental tariffs placed on items like lumber and timber and things like that, correct?

Will Pellerin  03:20

That’s exactly it. So really, that’s it’s the sectoral piece that’s really going to hurt us now, because we have these tariffs on steel, aluminum, autos, and now we’re adding kitchen cabinets and furniture and pharmaceuticals are coming. And so there’s a number of different tariff sectors that are being hit here, and those are the ones that Canadian parties are struggling with on the exporters side, and it’s also linked to the retaliation that Canada has, right?

Warrington Ellacott  03:50

So yeah, and I would encourage listeners to just Google the House of Commons and CII T, that’s the Canadian committee for trade. There was a hearing yesterday which had the minister present, and you can gather a lot of insights on the Canadian position right now, if you take a look at that, that hearing, it was a very good hearing. The other thing that’s happening is there seems to be an increased use of anti dumping and countervailing duty activity, both on the Canadian side. I know that you guys were involved in a letter that was sent to finance Canada regarding Seema, but also on the US side as well.

Will Pellerin  04:31

Correct, that’s right. So countervailing duties and anti dumping duties have increased tremendously. We’re probably on track for the biggest year in history in terms of new cases in Canada that are being brought and the main reason for that is simple. It is tied in large part to the ongoing trade war with the United States. Because if you’re a Canadian exporter and all of a sudden you can no longer shift to the US market, you. Economically because you have a large tariff that applies whether you’re in the steel sector and have a 50% tariff or generally, it means that you have to find alternative markets, and your domestic market is the main one. And in many, many instances, maybe you had given up on the domestic market years ago, or because the Chinese product or the Vietnamese product, had taken a big position in the Canadian market. So what we’re seeing is a lot of folks looking at the Canadian market with renewed interest and saying, if I can bring in an anti dumping case, I can get, you know, a lot of the imports kicked out of the market or priced up in the market to defend my home territory. And so that’s becoming more and more and more important, and it’s a big reason why we’re seeing kind of a historical surge in these new trade remedy investigations.

Warrington Ellacott  05:47

And I think it’s fair to say that there’s frustrations on both sides of the border for both plaintiffs, because of the cost of these are high. The length of time it takes to get adjudication of the issue is a frustrating and so this is why the US administration, for example, is using other tools in its toolkit to enact tariffs at its wants in other ways, right?

Will Pellerin  06:10

Well, that’s exactly it. We’re not seeing a rise in anti dumping and anti subsidy countervailing duties in the United States in the same way as we are in Canada. And the main reason is that the US administration is just slapping tariffs willy nilly across the board in the United States. So the complainant parties, the petitioners, don’t need to bring cases, you know, these complicated, million, $2 million cases that take a year to get duties in place, when they can just lobby the US administration, and the US administration says Yes, right. So we’re seeing a wide range of new duties being imposed in the United States constantly. Derivative steel products are growing. Derivative copper products are now being hit, and that hits the whole world. So if you’re a US manufacturer, and you’re affected by tariff by low priced offshore goods. In the past, you might have done a complicated trade remedy case. Now you just lobby the US administration.

Warrington Ellacott  07:11

Yeah, and so I guess I’ll conclude this opening paragraph with we’ve seen the United States negotiate certain agreements with certain countries and certain trading blocks, but there seems to be a little bit of cracks. Bit of cracks in that that structure as well. They haven’t concluded agreements with India, for example. And there’s this tension between the United States and Brazil, and also the United States put into effect tariffs on Chinese flagged vessels, and those are about to take place on the 14th of October. So I think traders globally are starting to see costs and tariff complexity rise, not decline, right?

Will Pellerin  07:49

Absolutely, absolutely. And Warrington, one of the on this point, just concluding also you mentioned earlier the new tariff rate quota systems in Canada, which really illustrate the point that global supply chains are completely shifting. So what listeners might not know, those that are not in the steel sector or not linked to steel importers, for example, is that Canada imposed two brand new tariff rate quotas in the Canadian market. And for those that don’t know, a tariff rate quota, Trq is where you can bring in a certain amount of volume without paying a tariff, but above that, a tariff kicks in. And so on the steel side, Canada has imposed a Trq on our FTA partners, meaning anyone we have a trade agreement with has a Trq. It’s set based on the volume of 2024 imports, above which 50% tariff applies. And we have a second tariff rate quota for our non free trade agreement partners, and that one kicks in at only half of last year’s volume again. So basically, our volumes of steel that Canada is going to be accepting tariff free from other countries is cut in half, and of that, a 50% tariff applied. So really, the steel industry has been lobbying hard and getting big wins here in order to at least maintain some sales in the domestic market, while they can’t ship the United States because the United States has imposed that 50% tariff.

Warrington Ellacott  09:19

Yeah, it’s really unfortunate that steel is becoming that poster child of it’s no longer going to be able to be traded. It’s an article where it’s going to be a domestic article alone, and that’s the way it’s going to be. And hopefully that doesn’t spread. I hope it doesn’t spread, but when we look at so that’s what we think has happened? Well, there’s been some collateral damage associated this. Even though the United States and Canada are actively involved in talks, Canada took action on Chinese electric vehicles, and immediately the Chinese implemented, basically they eliminated Canada’s canola. Canada seafood products from its market. You’ve also seen some fallout in the Chinese market for soybeans. The United States is now contemplating, you know, a bailout for their their farm sector. You’re starting to see activity on the Russian side there. You know, it’s interesting, like, when all of these things happen. Listeners may not recognize when one market closes, other markets open, and traders now are moving products differently around the planet. And we were just chit chatting before we got going here about how sanctions, like listeners always have to remind themselves about sanctions. So if you do have a new supply chain, you need to consider these factors, right?

Will Pellerin  10:44

Will absolutely so. I think I agree at a very high level. One of the key points here is this, this idea of trading blocks, right? So you were really splitting the world like never before, between the China plus allies, versus us plus allies. And the United States has really been pushing countries to pick a camp and pick in its favor, even though it is willing to hit its allies and apply a lot of pressure through tariffs to its own allies. But we’ve seen that with respect to China, really pushing back hard and creating its own spheres of influence. And so you’re right. When Canada hit China with tariffs on EVs and steel, China hit back very hard on the agricultural sector. Those tariffs on canola, on seafood, on the canola seeds remain, and it’s very difficult to unwind. And so we can’t ship canola to China economically, trying to open up new markets, but we’re seeing Australia eat our lunch in China with respect to canola increasingly. Similarly, as you point out, China is retaliating against the United States on on soybeans, and China’s purchasing vast quantities from Brazil and and reorganizing kind of global supply chains as they go, and it’s going to cost the US taxpayers billions of dollars to bail out the soybean farmers.

Warrington Ellacott  12:09

Yeah, well, at least there’s a certain amount of good things happening in Canada. I wanted to end this part of our discussion here is that you’ve heard us talk before on the pod about Canada’s internal trade problems, and Canada recently introduced a piece of legislation called c5 which was this major projects initiative to cut red tape get major projects started. And you know, we had, we had Julie on from the Port of Montreal, and we’re glad to tell everyone here, the Contra cur project was approved, and I think Julie’s ordered shovels, and they’re going to start going into the ground within days here. So they’re all happy there, and she’s going to be with us in November. But on the internal trade file, I think there’s been some progress. I’m still kind of one of those show me guys on this file. But I think also I’ve witnessed a more provincial focus here too. You see the Premier of Ontario, Premier Ford, just had a very successful meeting with Michigan’s Gretchen Whitmer and Scott Moe was in China, and he’s been working with the Prime Minister very closely. So I think you’re starting to see more cooperation, more collaboration towards these major projects. Would you

Will Pellerin  13:28

agree? Definitely. I think there’s the premiers are generally working together, working with the federal government. I think everyone’s got this kind of like war cabinet mindset, where this is a national importance time. Let’s band together. We can disagree on the margins, but generally we have to be quite aligned, and we have to do better with our internal barriers. I’m not sold that there is billions of dollars into the Canadian economy that can come from reducing some of these internal barriers, maybe some some benefits, certainly, but it’s not going to replace the US market. I mean, we’re not talking in those times of scale and scope. So I think there’s good news. I think Canadians want the provinces to work together. The province are being very active. Also. They’re punching back in case of Ontario, the bike by Ontario and by Canadian provisions are going in place. We continue to see some major US irritants, like Ontario not buying us alcohol, which continues to anger the US ambassador, but ultimately that’s okay. I mean, the provinces of Ontario in particular is playing the tough guy to Prime Minister Carney, playing the, you know, nicer guy, good guy.

Warrington Ellacott  14:50

Yeah, when we understand Prime Minister Carney will be in Washington on the 16th or Yeah, so sixth and seventh, I think that was and we’ll be meeting with the President. So we hope that goes well. On the international front, Canada has been very active. We’ve seen a Free Trade Agreement agreed to with Indonesia, which is fantastic. The Mercosur regional talks. Those talks are beginning, and I know Aaron Fowler is now involved, and is now traveling there and getting those talks going. Canada’s trade diversification strategies in full swing, and it seems to be top of the charts here in in global affairs. So that’s all very good. But I think everyone here, probably on the call is thinking about usmca or Kuzma, as we like to call it here, and the three countries officially kicked off consultations, right? So as we proceed to the consultation, I think it’s important for listeners, there’s public comments available in all three countries. So I think if there’s one thing, one takeaway from today’s discussion is, if you have a comment, submit a comment, right? That’s good, but will what? What should we be thinking about more holistically about usmca trying to set expectations here.

Will Pellerin  16:05

I think that’s the right question. I mean, ultimately, the Government of Canada’s number on priority is to keep the agreement as much as possible as it is, and to have it respected, right? Ultimately, we’re trying to renegotiate an agreement that was the best deal ever struck by President Trump himself, and an agreement that simply is not being respected because the US is imposing these national security tariffs. So Priority One has to be making sure that none of these national security tariffs can continue. They have to be dropped in an ideal world, they get dropped before we re engage full pledge negotiations with the United States on the Kuzma. I think that window is closing, however, because we’re starting to see that the US is probably going to want to just merge all those things together and get some additional concessions on things like supply management from Canada on automotive rules of origin and the like. So I think there’s still hope that we can strike some sort of short term security and defense agreement that rolls back the sectoral tariffs for Canada. Maybe it means that we are going to commit, like Japan and the EU to making investments in the United States, but that’s a separate story from the Kuzma renegotiation. On that one, I don’t think Canada has a lot to offer, other than, again, trying to broaden it with security and defense and NATO commitments and the like. In the meantime, I think you’re absolutely right. Trade diversification is the name of the game. I was working at Global Affairs Canada during the Indonesian negotiations many years ago, I was with the trade law Bureau when Mercosur negotiations were in full swing. Everything had stalled for many, many years, and it looks like they’re pulling them off the shelf and trying to get these closed. So whatever the irritants were that were preventing us from signing, we’re willing to move on.

Warrington Ellacott  17:59

Yeah, and you know, there was, during the hearings yesterday, one of the MPs was asking the minister, like, Why? Why is trade diversification not happened? Everyone’s excited about it, lots of activity, but it would appear that the geographic pull of our largest the largest market in the world, and the same legal framework, the same language is seductive. And you know, perhaps this time in global trade has really kicked the Canadians in the backside to diversify. So, which leads me to, I guess, well, what, where are your teams focusing right now? What are you advising clients, and what do you see the next 120 280 days look

Will Pellerin  18:44

like? Yeah, so for us, it’s a mix. I mean, we’re the largest international trade team in the country now on the legal side. And so it’s everything. It’s everything from trade compliance, complying with the new government regulations, the declarations on import of goods, it’s trade remedies. Is absolutely wild, tariff classification issues, remission issues, Rules of Origin issues, so all sorts of assistance with companies that are bringing product into Canada, exporting goods out of Canada, reorganizing global supply chains and just making sure that they are compliant. Still, some sanctions work. Also, as you know, we continue to decouple from Russia, and sanctions rules continue to change. Some export control issues still, but I think the name of the game these days, this week, next week, probably a lot of remission work to make sure that product can flow into Canada without paying tariffs, in some cases where there’s no ability to source domestically, which is very important to maintain massive projects and continue them moving forward fast, to build Canada and then. And then trade remedies probably the highest priorities right now.

Warrington Ellacott  20:02

And it’s fascinating folks like what he just said, if we were here maybe five years ago, that conversation would have been about half the length of what he just said, like, the amount of complications involved now in filing a customs document, and the data required to do that is just astronomical. So what, what we’re doing on the IE Canada side for the fourth quarter is obviously, I remind folks that we are having our conference in in Ottawa in November, and just for you folks on the pod, we have a promotion code for anybody who’s interested in coming up to see us. Will’s going to be there live in person. You can get an autograph and see him do his thing live. So the the promo code is simply trade, one word, simply trade, and that will give you some savings. And if you go to ID, Id canada.com you’ll be able to register and come on up. We have the ambassadors of France, the EU Asian Mercosur, Ukraine and Malaysia, speaking as well as Canada’s chief trade commissioner, Sarah will shall be there. Goldie Hyder, I had lunch with Goldie at the Empire club the other day. He’s going to provide a perspective from the CEO C suite space. We’re going to be talking CETA, Sima AZ and Mercosur Rules of Origin. Will is going to be on our famous legal panel. We’re going to do Agra food and infrastructure. We got a lot to talk about. It’s going to be a great, great event. We hope you all can come up. And with that, I’m going to ask Will for the key takeaway. What’s the key takeaway for today?

Will Pellerin  21:34

It’s all eyes on on the Trump administration, all eyes to see what Canada will do to increase or not increase its retaliatory tariffs in respect of this latest round so Canadian exporters, as of you know, two weeks from now, in the furniture, kitchen cabinet, softwood lumber space, are facing additional tariffs. Canada had been rolling back its counter tariffs, its counter punches. What will Canada do? Will we continue to try to work hard to get a deal, or is there a time where we start punching back a little bit harder again? So we haven’t heard the end of the story yet?

Warrington Ellacott  22:13

Yeah, I think that time is coming. The pressures on the Prime Minister to act, I think, are becoming more fast and furious. Well, with that, will I’d like to thank you for coming as always, very, very helpful dialog. And I’d like to thank our folks at the Global Training Center and simply trade pod. And with that, we’ll bid you a good day. See you soon. You you.