U.S. sets May 1 tariff threat on Canada, Mexico amid rush to speed up NAFTA talks

The United States has just applied additional pressure in its rush to get a new NAFTA agreement within several weeks, establishing a May 1 deadline, after which Canada and Mexico would face tariffs on steel and aluminum.

Originally, Canada and Mexico received an indefinite exemption from the tariffs with no expiry date, then numerous countries were added to the exemption list and now there's an expiry date on the exemptions, when tariffs could snap into place.

The latest tweaks came in presidential orders signed Thursday. An order on aluminum said: "The exemption afforded to ... Canada, Mexico, Australia, Argentina, South Korea, Brazil, and the member countries of the EU shall apply only ... through the close of April 30, 2018."

Every country seeking a permanent exemption is being asked to negotiate separate arrangements with the U.S., and quotas appear to be part of the American demand. In the case of Canada and Mexico, the U.S. is explicitly tying the issue to NAFTA.

Despite the exemption deadline, Foreign Affairs Minister Chrystia Freeland's office said the minister is working to lift any penalties permanently.

"The president exempted Canada from steel tariffs, recognizing the unparalleled economic and security integration that benefits both countries. The U.S. has a surplus in steel trade with Canada, and maintaining open trade is the best way to support American jobs," a spokesman for Freeland said in an email to CBC News.

"Canada's temporary exemption is a step forward. Our work will continue until the prospect of these duties is fully and permanently lifted."

It so happens that May 1 deadline coincides roughly with the last date for finalizing a new NAFTA this year.

The Trump administration fears that any further delay could imperil an agreement, given political realities: the U.S. ratification process takes months to complete, the opposition Democrats could regain control of Congress in January and a firebrand leftist is favoured to become Mexico's president Dec. 1.

"We think there's a practical time limit, not a contractual one, not a legislated one, but a practical time limit on the negotiations due to the political calendar," Commerce Secretary Wilbur Ross told a congressional hearing this week.

"It's my view that if we don't have a resolution within the next month or so, very likely it'll be kicked over for quite a little while because of the election cycle. Especially in Mexico, where, as you know, there is one candidate who is running on a quite anti-American platform."

There actually has been major movement at the NAFTA table lately.

On an issue seen as arguably the No. 1 American negotiating objective, auto manufacturing, the U.S. has essentially dropped a controversial proposal deemed a non-starter by Canada and Mexico. The U.S. has proposed a more flexible formula for ensuring production in the U.S., rather than a hard rule demanding 50 per cent of every car to have American content.

I can assure you, if we don't get a better deal within the context of NAFTA from Canada and Mexico and refigure this, we're going to have something happen- Peter Navarro, White House trade adviser

The Canadian government is buoyed by other recent developments in Canada-U.S. trade: this week Boeing has dropped its legal fight against Bombardier and there are indications of a potential settlement in a dispute over glossy paper.

Now the U.S. is making a threat: Without a new NAFTA, there could be tariffs.

"I can assure you, if we don't get a better deal within the context of NAFTA from Canada and Mexico and refigure this, we're going to have something happen," White House trade adviser Peter Navarro told CNN this week.

He said every country will have to agree to caps on steel and aluminum exports to the U.S. The Trump administration is concerned that a glut of Chinese steel will be dumped into countries that have an exemption, then squeeze into the U.S. market.

That's why it's seeking quotas on exports.

"Every country that is not facing tariffs that we're going to negotiate with will face quotas, so that we protect our aluminum and steel industries," Navarro said.