Does Canada Really Represent a National Security Threat to the U.S.?
Does Canada really represent a national security threat to the United States? Other than frequent cold fronts and the recent hot streak of the Toronto Blue Jays, it’s hard to imagine America’s northern neighbor and NORAD ally posing a threat to its American friends. But a recent investigation into the national security threat supposedly posed by China to the U.S. aluminum industry casts a wide net – one that could end up catching in its meshes Canadian producers who play a key role in an integrated North American industry. If nothing else, the case adds further proof that trade actions are often a matter of cutting off your nose to spite your face.
The real target of Washington’s trade action is China. And in fairness, the Chinese government does seem to be bolstering its aluminum exports (to the United States and elsewhere) through uneconomic low-interest loans and subsidies to unprofitable aluminum plants. Whether this really hurts the U.S. consumer – who can access cheaper products containing aluminum – is another question. However, aluminum is crucial to the manufacture of a wide range of military hardware. Consequently, the Trump Administration – following up on a WTO dumping complaint filed last year by the Obama Administration – has launched a national security investigation under a law called Section 232.
There are two important things to keep in mind about Section 232: One, it is not employed very frequently, and never lightly. In fact, in the 55 years it has been in force, presidents have sought to use it only about two dozen times. It has resulted in sanctions only twice, and those were against oil imports from Libya and Iran in the early 1980s. Do China’s exports of aluminum—much less Canada’s – really fit in the same category? The second thing to keep in mind about Section 232 is that it is extremely imprecise. The current investigation into Chinese aluminum, for example, also sideswipes aluminum from Canada. That represents a huge deal for Canada, the Canadian aluminum industry, and their U.S. trade partners. After all, aluminum from China represents less than 10 percent of U.S. aluminum imports – while aluminum from Canada represents more than half.
Do U.S. aluminum imports from Canada – whose manufacturing facilities are defined under American law as part the U.S. National Defense Technology and Industrial Base – really pose a security threat, much less one significant enough to justify a rare use of Section 232? (Full disclosure: The writer of this article is Canadian.) In fact, aluminum imports from Canada clearly benefit the United States, and are essential to the U.S. aluminum industry. The industry has shaped an integrated North American supply chain, largely based on easily accessible, generally cost-competitive aluminum from Canada that is essential to U.S. aluminum companies – transforming and processing the metal to the requirements of their domestic and export markets. The North American partnership, in fact, is vital to maintaining the jobs of over 160,000 Americans who work for the industry, as well as more than 700,000 indirect jobs. But Section 232 is a clumsy instrument, so aluminum imports from Canada must be investigated along with those from China. It’s as though cops who suspect your neighbor of an illegal activity decided to raid your home as well, just because you happen to be nearby.
To be sure, any fair inquiry will not result in tariffs or other penalties against Canada or its aluminum industry. But can Canadians (and for that matter their American trade partners) be absolutely certain the judgment will end up being a fair one? Meanwhile, Canadians and the North American aluminum industry will face a year or so of anxiety until the inquiry is completed.
It’s easy to see the irony here. The investigation is a response to demands by the aluminum industry. But even the possibility of cutting off their North American supply chain is the last thing they would want. There seem to be two lessons here. For the aluminum industry (and others that may be seeking government protection): Be careful what you wish for. For the Administration pursuing this trade investigation: Be careful what trade actions you launch. Generally, they end up doing more harm than good.
