Tag: IEEPA

The US National Trade Estimates (NTE), Trump’s “Reciprocal” Tariffs and IP/Cultural Industries

Image: Shutterstock

On so-called “Liberation Day”, April 2, a day that, to echo FDR, will live in infamy, (the day the world trading system was turned upside down and the US shot itself in the foot, or head) Donald Trump unveiled a limited list of “reciprocal” tariffs in a Rose Garden game show format. Like a magician revealing a secret, he unveiled a chart announcing imposition of minimum 10% “reciprocal” tariffs on a variety of transgressors, like the UK even though it buys more from the US than it sells to it, or Singapore which is an open port and has no tariff import barriers at all, or even the Heard and Macdonald Islands, a remote Antarctic territory of Australia populated exclusively by penguins. The penguins weren’t on the shorter Rose Garden chart but were included in the full list published by the White House on Truth Social (that authoritative channel). The Truth Social list included the Svalbard and Jan Mayen Islands near the Arctic Circle (population 2500, many of them scientists at research stations), the British Indian Ocean Territory, a jurisdiction populated entirely by the US military with some token Brits to maintain the fig-leaf of British sovereignty, and Norfolk Island, population 1500, a remote island between Australia and New Zealand. Some countries, like the small African kingdom of Lesotho or the French North Atlantic islands of St. Pierre et Miquelon (population 5000) didn’t get off so lightly, being assessed at 50%, half their supposed transgression rate of 99%. St. Pierre’s sin was that someone shipped some fish to the US whereas the French territory neglected to purchase the same volume of US goods. I guess they don’t need Dodge Ram or Chevy Silverado trucks there.

When the White House finally published the official list they cleaned up some of the ridiculous anomalies initially announced (the penguins were gone), but the only official response from the Office of the US Trade Representative (USTR) was to try to explain how the “reciprocal” tariffs were calculated. Prior to the announcement, trade observers assumed USTR would actually measure the level of tariffs imposed on US goods by other countries, possibly “tarrifying” other alleged non-tariff barriers, like Value Added Taxes, “currency manipulation”, cultural support policies, weak IP regimes, or any other perceived or real grievance from US industries. This list of “problematic” measures is released annually in the National Trade Estimates (NTE) document assembled and published by USTR. This year it was released on March 31, a couple of days before “Liberation Day” leading to speculation that it would provide the backstopping for the calculation of tariff reciprocity. However, no measures on the lengthy list of transgressions were actually included or used in making the “reciprocal” tariff calculations. Instead USTR published the following impressive looking formula to explain how the “reciprocal” tariffs were calculated. It makes Einstein’s E=mc² look simple.

What this actually means, however, is that the reciprocal punishment was based exclusively on whether the US ran a trade deficit with another country (except where there was no deficit, as in the case of the UK and Argentina, where countries got nailed with the minimum 10% tariff anyway.) The actual formula represents the 2024 US trade deficit in goods with a given country, divided by the total quantity of US imports from that country. So for example if Country X grows a lot of bananas very efficiently and exports them to the US, which doesn’t grow bananas (as far as I know), and if Country X doesn’t import the same value in US goods as it exports in bananas, it will get nailed with a “reciprocal” tariff of at least 10%, probably more, even if it doesn’t apply tariffs to US imports. Since Country X is a remote, relatively poor country, the likelihood of it being able to import substantial amounts of US goods is low. Never mind that its country is dominated by US service providers, such as delivery services, content streaming services and banks. Services don’t count in the Trump Administrations calculations.

As long as Country X or others like it can’t find a way to buy US products (the leading US exports are petroleum and gas, aircraft and aircraft parts, pharmaceuticals, autos, and chemicals, none of which a poor country like Country X has much need for), their banana exports to the US will be subjected to tariffs. This will increase the price of bananas for US consumers, and possibly lead to reduced imports, putting some banana farmers in Country X out of business thus making them even less likely to buy US products. Who thought this was a good idea? (You know who). As the US National Tax Foundation pointed out, the calculations are nonsense and will punish mutually beneficial trade. Indeed, the sloppiness and amateurish way in which they were calculated and announced seems to reflect the typical modus operandi of this Administration. Rush things to social media without fact checking or even applying a commonsense test, like checking for penguins. It makes USTR look downright foolish.

While some countries were dropped when the official list was published, a couple were never put on that list. Russia was one, since there is almost no bilateral trade post-sanctions; Canada and Mexico were two other significant exceptions. That is because they had already been the recipients of the Trump tariff treatment earlier, as I have written about here, with the imposition of 25% US tariffs (which were subsequently suspended for products that qualify for tariff-free treatment under the USMCA/CUSMA, except for steel and aluminum). Trump used the same loophole, the “national emergency” provisions of the International Emergency Economic Powers Act (IEEPA) to impose tariffs on Canada and Mexico as he used for the “reciprocal” tariffs on most of the rest of the world. This legislation allows the President to deal with “unusual and extraordinary threats” to the national security of the United States.

Trump invoked the supposed flow of fentanyl from Canada to the US as the pretext for his trade actions. Earlier reports had indicated that only 43 lbs of fentanyl had been seized in 2024 by US officials at the Canada-US border (over 21,000 lbs were seized at the Mexican border). Updated statistics winkled out by the Globe and Mail show that in fact 555 lbs were seized at the northern border, or inland having crossed the border, but of this amount, only 0.74 lbs (i.e. less than a lb.) was of Canadian origin, or 0.13 % of the total. The rest was sourced from Mexico, the US itself (almost 30%) or from unknown sources. Facts matter, but apparently not in this case. The use of the IEEPA to impose tariffs on the rest of the world is equally specious, and almost certainly a violation of the legislation, as argued here and in more detail here. Tariffs are the prerogative of Congress to impose except in emergency situations but given the supine, badly divided and highly partisan nature of the current Congress, legislators seem unwilling or afraid to assert their rights and jurisdiction vis a vis the President.

Coming back to the National Trade Estimates (NTE), which until “Liberation Day” many of us assumed would form the basis for the calculation of “reciprocal” tariffs, they are still worth examining to understand which measures get under the skin of US business and the US government. Not all countries hit by the Trump tariffs were listed in the NTEs (the penguin islands did not get a listing), but many were (58 in all) for one policy or another that some interest group in the US objected to.

In Canada’s case, the US not unreasonably complained about Canada’s antiquated supply management system that gives dairy, egg and poultry producers a set-price closed shop paid for by Canadian consumers, and keeps out almost all imports. It also complained about provincial control of liquor distribution and marketing, although 17 US states have similar systems, restrictions on US seed exports, where seeds have to be registered with the Canadian Food Inspection Agency before they can be sold in Canada, and several other issues ranging from plastic waste regulations to the proposed Digital Services Tax. The US also objected to Quebec’s Bill 96 where some US businesses are concerned about the impact of the language law on their federally registered trademarks. But it is in the intellectual property (IP) and cultural industries areas where the complaints pile up.

In the IP area, the NTE draws on last year’s Special 301 (Watch List) Report on Canada, an annual USTR exercise that compiles the IP related “transgressions” of countries into a report that highlights US concerns. Among these with respect to Canada are enforcement against counterfeit goods and online piracy, inspection of goods in-transit, transparency with respect to new geographical indications (GIs), and the broad interpretation of the fair dealing exception for the purpose of education. The notorious Pacific Mall in Markham, about which I wrote way back in 2019, still gets USTR attention. According to USTR’s report “Noticeably counterfeit luxury goods, apparel, electronics, and automobile parts are reportedly on display or hidden under tables or in back rooms but are available upon request.” I did not have that experience when I last visited the place pre-COVID but maybe I didn’t look like a likely buyer so was not invited to look under the table.

As for measures taken by Canada to support cultural industries, both the Online Streaming Act and the Online News Act got mentioned as areas the US will continue to monitor closely. The whole USTR “name and shame” exercise is a bit hypocritical in my view and certainly one-sided since the US itself has a number of shortcomings of its own with respect to policies that limit compensation to creators or fail to adequately provide responses to IP theft, such as establishment of site-blocking (disabling access to offshore pirate websites). Last year I wrote a tongue-in-cheek Special 301 Report assessing how the US is doing. (The USTR “Watch List” Designation You Will Never See).

All these transgressions, and more which the Trump Administration could dream up, like the existence of Goods and Sales Tax (GST) in Canada or a Value Added Tax (VAT) in Europe, could have been used to determine “reciprocal” tariffs. But they weren’t, as we have seen. In Canada’s case it was not assessed tariffs additional to those that had already been imposed on the improbable pretext of fentanyl trafficking, and in the case of other countries, the NTE Report was set aside in favour of USTR’s “innovative” trade calculation formula.

What will happen next? That is anyone’s guess. Since I started writing this blogpost a couple of days ago, global stock markets have gone up and down like a yo-yo. Global tariffs that were to have been imposed at midnight on April 9 were suddenly suspended for 90 days–as a result of an impending meltdown in US bond markets–just hours before the deadline (except for a 10% toll on everyone). There were exceptions, the penguins, Canada and Mexico because of the USMCA, and China, which found itself with a combined tariff of something like 145% imposed on all Chinese goods coming to the US because it had not simply rolled over and accepted the US calculation of “reciprocity”.

If the first 80 days of Donald Trump’s Administration is anything to go by, it is going to be a wild ride that could well end up crashing the vehicle in which we are all passengers . The National Trade Estimates and reports like the USTR Special 301 (IP Watch List) will continue to be prepared and released but will be either ignored or used depending on the current whim in the White House. Some in Congress may eventually be inclined to stand up for their rights to control tariffs. Some US citizens may even go to court to challenge what the Administration is doing in defiance of the law, but all this will take time. In the meantime, don’t look at your stock portfolio, tighten your seatbelt and be prepared for whiplash. It’s Show-Time at the White House. Or is it Amateur Hour?

© Hugh Stephens, 2025. All Rights Reserved.

Donald Trump’s Tariff Threats: Their Potential Impact on Canada’s Cultural Industries

Image: Shutterstock.com

With a general election in Canada now set for April 28, attention will be focussed south of the border to see what Donald Trump says and does next. Apart from his tiresome and insulting trope about Canada becoming the 51st US state, how best to deal with the economic fallout from the imposition of unilateral US tariffs on Canadian exports to the US will be the big election issue. Indeed, the drumbeat of tariff threats emanating from self-proclaimed “Tariff Man” is becoming overwhelming, both in terms of tariffs already applied, but also regarding potential future tariffs. As we have already seen, the uncertainty and almost daily changes, (government by tweet), are roiling markets and undermining investor confidence. With respect to Canada there have been repeated threats of what is to come while some tariffs, such as those on steel and aluminum that were applied globally, are already in force. Then there are the threatened 25% tariffs on all Canadian (and Mexican) imports, except for energy products which will be taxed at a 10% level, imposing additional costs on US consumers. (The example of potash, an essential product needed by American farmers is an interesting case study. It is basically only available from Canada, unless you import it from Russia, Belarus or China. The US does produce a small amount but 85% of US potash consumption comes from Canada. So much for President Trump’s mantra that Canada has nothing the US needs. When US farmers squealed loudly, the duties on potash were suddenly lowered from 25% to 10% and then suspended completely under an exemption for all products covered by CUSMA).

The 25% tariffs designed to hinder the export of automobiles and car parts (amongst other products) manufactured in Canada from being shipped to the US —a measure which incidentally contravenes the terms of the US-Canada-Mexico Agreement (USMCA/CUSMA)—are temporarily on suspension given the representations made by US auto manufacturers who had to explain to the White House how integrated North American supply chains work, but any products not covered by USMCA/CUSMA are still subject to the 25% tariff. The pretext for this violation of a ratified trilateral trade agreement is supposedly the “national emergency” created by the flow of fentanyl and illegal immigrants from Mexico and Canada. The only problem with this rationale is that, in the case of Canada,  there is a greater flow of illegals from the US to Canada than vice versa, and the seizures of fentanyl at the northern border by US officials in 2024 totalled less than 20 kilos, less than one percent of the amount seized on the southern border. Thirteen grams (that’s less than half an ounce) were seized in January. This year, US border officials have caught more people smuggling eggs from Canada into the US (where the price of eggs has shot up owing to avian influenza in US poultry flocks) than fentanyl. But the facts appear irrelevant to the Trump Administration; what is important is to create a pretext to violate the USMCA.

That pretext was used to trigger the International Emergency Economic Powers Act (IEEPA). This legislation allows the President “to deal with any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States, to the national security, foreign policy, or economy of the United States”. It was first enacted in 1977 and is designed to deal with acts of terrorism or other threats to the security of the United States. It confers wide, albeit temporary, powers on the Executive Branch and has been used in situations like the Iran hostage crisis in 1979, the Soviet invasion of Afghanistan and to deal with various identified terrorist groups. Using it to punish Canada because under 20 kg (43 lbs). of fentanyl were seized in the course of a year at the Canada-US border is clearly an abuse of the intent of the Act. Notwithstanding, that is what Trump used to impose USMCA noncompliant tariffs on Canada.

The temporary suspension of the 25% tariffs on Canadian (and Mexican) imports will apparently end on April 2, when Trump plans to impose reciprocal tariffs on a global basis. How these will be calculated is anyone’s guess. The President has indicated that in addition to whatever tariff irritant he can find, he might also include other measures in US calculations that in his view discriminate against US goods and services. Thus, while most US products enter Canada tariff free (with the notable and unfortunate exception of most dairy products, which are subject to Canada’s outdated supply management system), Trump could take aim at other policies he doesn’t like. For example, while many US banks operate in Canada, none of them are full-service retail banks allowed to take deposits (but nor are they required to have the same capital requirements). Then there is the fact that Canada, like the EU, imposes a value-added tax (VAT) on most products (basic foodstuffs being the primary exception), called the GST (Goods and Services Tax). This is another potential target even though it is applied without discrimination to US, Canadian or products from any other country. Likewise, longstanding measures that provide protection and subsidies for Canadian cultural industries, like broadcasting (AV and music) content quotas or more recent mandatory financial contributions to Canadian content funds, along with funding obligations to support local journalism, could potentially become targets.

Would Google try to reopen the commitments it finally made to support Canadian journalism in order to avoid designation under the Online News Act? Will the mandatory “contributions” to Canadian content creation that the CRTC has imposed on foreign streamers become an issue? A prominent US trade association, the Computer and Communications Industry Association (CCIA), went so far as to claim that ”the CRTC’s structure of mandatory contributions contravenes Canada’s commitments to the United States under CUSMA”. While I think that claim is doubtful, if the Trump Administration regards the CUSMA as just a piece of paper to be ignored at will, US industries should think twice about using it as a lever against Canada. In any event, in my view the best approach is to continue to stress the value of cooperation and mutual benefit, as Canada has been trying to do by explaining to the Trump Administration why tariffs are self-defeating. In terms of AV production, the contribution that US content producers make to the Canadian production industry is significant even if there are disagreements about the extent to which US production in Canada helps or hinders creation and distribution of Canadian content.

It is important to note that all countries impose investment or trade restrictions of one sort or another, and the US is no exception. These restrictions are weighed in terms of the balance of reciprocal benefits when trade agreements are negotiated, including the current USMCA/CUSMA signed by Trump himself in his first term. But if you are not inclined to respect the commitments you have made, and intend to ignore carefully negotiated and signed treaties, then any domestic measure can become a target. Uncertainty as to what could happen next is a major concern. Two Canadian cultural industries that are keeping their heads down and hoping for the best are art dealers and book publishing.

Earlier this month, the Globe and Mail reported that art dealers and galleries are facing slowdowns in the face of the uncertainty brought about by the Trump tariff threats. Books, art and other informational materials were granted an exemption when Trump first imposed the tariffs on Canada, using the excuse of fentanyl trafficking. Buried within the legislation used to suspend USMCA/CUSMA obligations, (the IEEPA referred to in paragraph 3 above) is a provision that creates certain exceptions, amongst which is “any information or informational materials, including but not limited to, publications, films, posters, phonograph records, photographs, microfilms, microfiche, tapes, compact disks, CD ROMs, artworks, and news wire feeds”, unless controlled by some other authority. (Section 1702 (b)(3)). While US Customs noted the exception when publishing its Notice of Implementation, the on-again/off-again tariff implementation has created anxiety and uncertainty, not least of which is the possibility that any random Customs officer can hold up a shipment based on an individual (mis)interpretation of the regulations. Compounding the issue is the announcement by Canada of 25% retaliatory tariffs that include, among other things (the targets of the retaliation are wide covering everything from toilet paper to drones), “Paintings, drawings and pastels, executed entirely by hand”.

Book publishers are also exempted under the IEEPA and are keeping their heads down, as noted by another article in the Globe. Many Canadian publishers do not ship much to the US but some do, including companies that are exclusively printers rather than full service publishers. In the case of Friesens Corp, a printer in Manitoba, the bulk of their business is from US customers. However, now a new threat has risen for Canada’s independent book sellers. Books have been included on Canada’s retaliation list, and if books from the US are subjected to a 25% retaliatory tariff, the cost will be passed on to bookstores, and ultimately consumers. Independent bookstores already work on very thin margins and an additional charge will likely affect sales. Harm to Canadian business and consumers is the flipside of punishing US exporters, just as harm to US consumers will result from US tariffs on imports. Surely it would be best to leave a cultural product like books out of the trade war.

What happens next with regard to tariffs on exports to the US, from Canada or elsewhere, seems to depend on Donald Trump’s mood of the day. The expected announcement of “reciprocal tariffs” on April 2 will create further uncertainty and likely retaliation, further feeding the spiralling trade war. The fact that import tariffs are levied on the importer and are largely passed on to consumers seems not to have registered with the Trump Administration. They can certainly raise revenues, but if the end goal is to impede imports so that all production is reshored to the US, then presumably the revenue windfall (largely ultimately paid for by US consumers) will ultimately disappear. To depend on tariff revenues to fund more tax cuts in the US is ultimately a self-defeating strategy. In the meantime, the US economy will have suffered the impact of increased prices on all imported goods.

The Trump tariffs have had the effect of causing maximum disruption and chaos, and if that was the goal, then Donald Trump has succeeded. In the meantime, Canadians have until April 28 to figure out which political party and leader is best equipped to help navigate the treacherous waters ahead. Whatever happens, copyright and cultural industries are unlikely to escape getting wet.

© Hugh Stephens, 2025. All Rights Reserved.

This post has been updated to include reference to potential Canadian retaliatory tariffs on US book imports and the impact this will have on independent bookshops in Canada.