Safety Net Protects Canadian Automakers From Possible Retaliatory US Tariffs

Canadian suppliers worried about retaliatory tariffs from the U.S. can breathe a sigh of relief, at least those working in the automotive industry. Tariffs on U.S. steel imports have raised costs across the sector; however, according to Reuters, Canadian government customs provisions are in place that could “reduce or refund import duties” to companies in the country as long as suppliers use the material in export products.

Following the U.S. administration’s decision in June to impose steel and aluminum tariffs on our neighbors to the north, Canada retaliated with its own tariffs on $12.8 billion worth of U.S. goods. On July 16, Reuters reported Canadian automotive supply contracts for raw materials and parts fall under these programs, which stand to help those operating in the country, including General Motors, Ford, Fiat Chrysler, Toyota and Honda.

Trade Lawyer Jesse Goldman, of Borden Ladner Gervais, said in the article that retaliation would “very significantly and very quickly” hurt Canada’s automotive sector.

“Some 85% of vehicles built in Canada in 2016 were exported,” the article added, “meaning duty relief programs could refund roughly 85% of retaliatory tariffs paid by automakers.” The only concern standing in the way of such benefits is the possibility of additional U.S. tariffs on Canadian-made vehicles because the rebate programs do not cover finished products.

To apply, a company must submit an individual application that details how it uses its imports, John Boscariol, of McCarthy Tetrault’s international trade and investment law group, told Reuters.

-Andrew Michaels, editorial associate

US Import Prices Down, Not Sustainable for Future


The price of U.S. imports saw the largest drop in two years as of June—but this drop is not likely to last after tariffs on foreign goods are imposed.

Import prices jumped by 0.9% in May, while June saw a sharp decrease of 0.4%, a dip that comes close only to the drop in February 2016, according to the Labor Department. Imported food saw a significant fall, coming in at a 2.6% decrease. The last time food fell this low was in February 2012. Petroleum also shook the market, falling 0.8% after a sharp 7.4% increase in May. Crude oil prices in general dropped in June as well.

However, these drops are not sustainable, according to a recent article in Reuters. The current presidential administration has imposed tariffs on imported lumber, steel and aluminum, which will inevitably raise the prices for July. The U.S. government has also called for 25% duties on $34 billion of Chinese imports. Previously, the president threatened 10% tariffs on $200 billion of Chinese goods.

“Odds are that the tariffs will begin to boost import prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, in an interview with Reuters. “The inflationary impact of the steel and aluminum tariffs has been modest, partly because a number of countries initially were exempt, but that has changed.”

—Christie Citranglo, editorial associate

‘Imminent, Serious’ Inflation on the Horizon

Inflation is becoming increasingly problematic for U.S. producers. Unanticipated gains in June’s Producer Price Index (PPI), released July 11, have economists predicting rising costs for manufacturing and construction material in connection to the U.S. administration’s tariffs on various imports.


According to Reuters, the PPI reached an annual increase of 3.4% in June after last month’s 0.3% gain, becoming the most substantial annual increase since the 3.1% seen in November 2011. Economists predicted the PPI would increase 0.2%. As previously reported by news outlets, the Federal Reserve is still expected to increase interests rates twice before the end of 2018.


U.S. tariffs have caught the attention of China, the European Union, Canada and Mexico, all of which have retaliated with their own tariffs in recent months. President Donald Trump’s 25% tariffs on $34 billion of Chinese imports, and threats of more, is creating tight times for U.S. manufacturing and construction due to significant price increases in steel, aluminum and softwood lumber as well as iron and steel mill products.


“Since the PPI covers the price of domestically produced goods, these gains represent U.S. producers raising prices behind the tariff wall or the impact of higher input costs,” Chief Economist John Ryding, of New York-based RDQ Economics, said in the Reuters article. “We expect these price pressures will flow through into higher core inflation at the consumer level as the year unfolds.”


NACM Economist Chris Kuehl, Ph.D., suggested the low inflation seen in the past decade might soon come to an end due in part to the rising prices of commodities and key services. The U.S. government’s tariffs are making this threat “more imminent and serious,” he noted.


“The tariffs on steel and aluminum triggered the metal producers to boost prices by around 40%,” Kuehl said. “The threats of a trade war have further added to the problem as this will make imports costlier. The full impact of this move has not yet been felt, but those days are coming and soon.”


-Andrew Michaels, editorial associate

Survey Shows Tax Reform Likely Will Not Increase Spending

Even with a tax reform passed by the Trump administration, corporate spending will likely not see an increase, according to a report from the Association for Financial Professionals (AFP). Forty percent of the 640 corporate treasury and finance executives surveyed do not expect their spending to change in the near future.

 

Even though 60% said they will increase spending, this spending comes in the form of paying down debt and pulling foreign cash back into the U.S., not buying more goods. AFP President and Chief Executive Officer Jim Kaitz said in a statement these companies are acting cautiously with their money, waiting for the right moment to spend the saved money.

 

Conversely, State Street Global Advisors’ Senior Managing Director and Global Head of Cash Business Yeng Felipe Butler said in a separate statement businesses are holding off on spending because of rising fears surrounding the U.S. economy’s growth.

 

A majority of the survey respondents—59%— do not anticipate seeing changes in short-term investments for their firms; only 10% anticipated a change. The findings in this survey match that of another survey by AFP released in May, titled Corporate Cash Indicators Report.

 

—Christie Citranglo, editorial associate