A recent article by CBC in Canada highlights the mess that has resulted from the imposition of steel and aluminum tariffs between the U.S. and Canada.
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It is fair to say the same mess is almost certainly prevailing on the U.S. side of the border.
The only winner seems to be the Canadian Treasury —and, likewise, the U.S. Treasury — which is raking in tariff duties from consumers having to pay more money on imported steel and aluminum.
CBC quotes Finance Canada data suggesting $839 million has been collected; the figure will hit over $1 billion by the time Canadian Finance Minister Bill Morneau announces his pre-election budget this spring.
Quite how he will handle this unexpected windfall remains to be seen.
Politicians announced some $2 billion of aid when tariffs were first imposed, but to date very little has been paid out.
Worse, what has been paid out is largely in repayable loans, so while some may help cash flow, none will actually mitigate losses. The government, then, will get to keep much of the money raised from tariffs, but the winners and losers is much more complicated than Treasury vs. Consumer.
Exemption Requests of All Kinds
Even among consuming companies, some are securing exemptions while others are not. On the U.S. side of the border as of December, the report states the Commerce Department had received nearly 57,000 requests for exemptions from steel tariffs and over 7,000 requests for aluminum exemptions. Of these, nearly 14,000 exemptions had been processed and granted for the 25% steel tariff, and just over 900 exemptions had been approved for the 10% aluminum tariff.
Like all tax exemptions, much no doubt depends on how good a lawyer you have fighting your case.
In Canada, it is estimated up to $285 million could be refunded to those firms granted an exemption. Among applicants are those with a genuine case, one of the criteria being a lack of domestic market supply that leaves no choice other than to import.
But mixed in among genuine cases will be plenty of others who have just made a good case or spent enough money on good lawyers to get around the tariffs.
The Big Picture
The question at the back of everyone’s minds is this: how long the tariffs will last?
Everyone knows they will not last forever. At some point, the tariffs will be withdrawn. Will that be when a deal is finally struck with China?
Maybe, but the tariffs were not solely aimed at China.
Imports of Chinese steel and aluminum were down before the new tariffs were announced, largely due to earlier anti-dumping action. Steel and aluminum tariffs are part of a wider effort to encourage more domestic production of these materials. When will enough be enough?
Some progress has been made. Investments in new production capacity have arguably resulted from the imposition of tariffs, but likely not to the level hoped for. Our guess would be tariffs will hold through 2019 — but 2020?
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It seems hard to justify the cost to consumers and exporters of finished goods to make the tariffs permanent. However, in the meantime, the Treasury departments of Canada and the U.S. are reaping significant rewards.
Nothing new there.