Key Takeaways
- The U.S. trade policy towards Canada is three times more restrictive than the country’s average tariff rate.
- The average tariff on Canadian imports was around 4% in October, but the overall burden to U.S. consumers from steep tariffs on key products was equivalent to a 12% across-the-board tariff.
- The Trade Restrictiveness Index (TRI) tariff rate translates the patchwork of U.S. exemptions and sectoral tariffs into a single number, providing a more accurate representation of the impact of U.S. trade policy on Canadian imports.
- Canada is the starkest example of the gap between average tariffs and the TRI tariff, with economically important categories facing very high tariffs that create substantial distortions.
Introduction to U.S. Trade Policy
The United States has implemented various trade policies that affect its trading partners, including Canada. While Canada has been exempt from some of these policies due to the North America trade deal, a new study has found that the U.S. trade policy towards Canada is more restrictive than initially thought. The study, published by the National Bureau of Economic Research, examines duties collected at the most detailed commodity level in trade data and presents a Trade Restrictiveness Index (TRI) tariff rate. This rate translates the patchwork of U.S. exemptions and sectoral tariffs into a single number, providing a more accurate representation of the impact of U.S. trade policy on Canadian imports.
The Trade Restrictiveness Index (TRI) Tariff Rate
The TRI tariff rate is a measure of the overall burden to U.S. consumers from steep tariffs on key products such as steel and automobiles. According to the study, the TRI tariff rate for Canada is equivalent to a 12% across-the-board tariff, which is three times higher than the average tariff rate of 4% on Canadian imports. This discrepancy highlights the limitations of relying solely on average tariff rates to assess the impact of U.S. trade policy. As author Michael Waugh notes, "A few very high tariffs create more distortions than many moderate tariffs with the same average rate." This means that the high tariffs on specific products, such as steel and automobiles, have a more significant impact on U.S. consumers than the average tariff rate suggests.
Canada’s Vulnerability to U.S. Trade Policy
Canada is particularly vulnerable to U.S. trade policy due to its extreme dependence on the U.S. market. The country’s exports to the U.S. are subject to various tariffs, including a 25% tariff on automobiles and a 50% tariff on steel and aluminum and derivative products. These tariffs create substantial distortions that are not captured by the average tariff rate. As economist Jim Stanford notes, "It’s quite wrong to conclude that Canada has the ‘best deal’ on trade with the U.S." Canada’s unique vulnerability to U.S. trade policy is a result of its legacy of continental restructuring over the past 35 years, which has made it heavily reliant on the U.S. market.
Implications of the Study’s Findings
The study’s findings have significant implications for Canada’s trade policy and its relationship with the U.S. The TRI tariff rate provides a more accurate representation of the impact of U.S. trade policy on Canadian imports, highlighting the need for Canada to diversify its trade relationships and reduce its dependence on the U.S. market. Additionally, the study’s findings suggest that Canada should be cautious in its trade negotiations with the U.S. and seek to mitigate the effects of high tariffs on key products. By understanding the true impact of U.S. trade policy on Canadian imports, Canada can develop more effective strategies to promote its trade interests and reduce its vulnerability to U.S. trade policy.
Conclusion
In conclusion, the study’s findings highlight the complexity of U.S. trade policy and its impact on Canadian imports. The TRI tariff rate provides a more accurate representation of the overall burden to U.S. consumers from steep tariffs on key products, and Canada is particularly vulnerable to U.S. trade policy due to its extreme dependence on the U.S. market. The study’s findings have significant implications for Canada’s trade policy and its relationship with the U.S., and highlight the need for Canada to diversify its trade relationships and reduce its dependence on the U.S. market. By understanding the true impact of U.S. trade policy on Canadian imports, Canada can develop more effective strategies to promote its trade interests and reduce its vulnerability to U.S. trade policy.
