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Opinion: U.S. Supreme Court ruling makes CUSMA review even more critical

We will have to make policy concessions to get a deal, but the U.S. is always going to be our most important export customer

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On Friday, the U. S. Supreme Court (SCOTUS) released its long-awaited decision on the legality of the Trump administration’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs. In a 6-3 decision, it upheld a lower court’s decision that President Trump exceeded his authority under that act, and that congressional authorization is needed because the sweeping “emergency” tariffs President Trump imposed last year have major economic and political significance.

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Though it’s a welcome limit on this (or any other) president’s legal ability to cite national emergencies to leverage economic and political concessions from other countries, the ruling’s direct impact on Canada is limited. Most exports to the U.S. escaped the IEEPA tariffs and continued to enter the U.S. tariff-free, provided they satisfied North American content rules under the Canada-U.S.-Mexico Free Trade Agreement (CUSMA). And the sectoral tariffs Trump imposed last year on Canadian exports of steel, aluminum, autos and lumber were enacted under different law — Section 232 of the Trade Act of 1971, which provides presidential authority to introduce trade restrictions due to national security.

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Notwithstanding the SCOTUS ruling, the Trump administration retains significant authority to levy tariffs and implement other restrictions on imports. As a result, substantial uncertainty still surrounds Canada-U.S. trade.

Nor is it clear yet whether or how the ruling will affect the Trump administration’s approach to the upcoming trilateral review of CUSMA. But, coupled with a recent congressional vote to revoke the emergency tariffs on Canada and continuing disapproval of Trump’s tariffs by a majority of Americans, it may strengthen Canada’s hand. To the extent that the president acknowledges that judicial, political and public opinion are turning against his slapdash trade protectionism, he may be more willing to engage in constructive discussions. It’s noteworthy that the new 10-15 per cent tariff he slapped on most U.S. imports in response to the ruling exempts Canada and Mexico. For Canada, that suggests working toward a revamped CUSMA is still worthwhile, despite Trump’s occasional musings about walking away from the agreement.

But it is clear that to retain the CUSMA framework Canada must make politically difficult concessions on issues such as agricultural supply management, cultural protection, and the regulation of banking, telecom and possibly drug prices. Although most of the changes in Canadian policy that Trump seeks may actually be to Canada’s long-run economic benefit, they’re likely to involve transition costs. Any serious Canadian push to diversify trade will also carry substantial costs, including major expenditures to develop new and improved transportation infrastructure. Building that infrastructure may also exacerbate political tensions among provinces, as evidenced by the friction between Alberta and British Columbia over a potential new oil pipeline to move Alberta hydrocarbons to Asian markets.

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It’s always possible, of course, that this president may decide to disregard even a trade agreement he negotiated when he believes it’s politically advantageous to do so. But it’s worth repeating that the bulk of Canada’s exports to the U.S. have been shielded from tariffs under the auspices of CUSMA. And a renegotiated CUSMA is likely to be in force longer than this president is in office.

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If the Trump administration does re-commit to CUSMA, and maybe also agrees to reduce or even eliminate sectoral tariffs on specific Canadian goods, that would provide time for the Carney government to get its trade diversification initiatives going. In this period of cross-border friction, we hope the prime minister keeps an open mind about rejuvenating the bilateral economic relationship with Canada’s predominant trading partner.

Steven Globerman and Jock Finlayson are senior fellows at the Fraser Institute.

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