Tariff roundup: Greenland backdown, South Korea, Canada escalation

Canada

After Canada announced a deal with China to lower tariffs on a quota of Chinese electric vehicle imports in exchange for decreased Chinese duties on Canadian canola oil, Trump threatened additional and higher U.S. tariffs on Canadian products Jan. 24.

“If Canada makes a deal with China, it will immediately be hit with a 100% Tariff against all Canadian goods and products coming into the U.S.A.,” Trump posted on social media.

The U.S. began tariffing a number of Canadian products at 25%, and then 35%, last year, despite Canada’s participation in the version of the North American Free Trade Agreement (NAFTA) updated by the first Trump administration. The current administration says it wants to renegotiate that free trade treaty, now known in the U.S. as the U.S.-Mexico-Canada Agreement (USMCA), in the first half of this year.

Whether the Chinese EV agreement, which was set days before Trump’s post, constitutes “a deal” worthy of this response in Trump’s eyes remains unclear. Canadian Prime Minister Mark Carney says the country is not pursuing a full free trade agreement with China.

During a speech in Detroit on Jan. 13, Trump called the USMCA “irrelevant,” the strongest rhetoric yet from the administration that it could withdraw from the largest free trade agreement in the world this year.

“There’s no real advantage to it, it’s irrelevant,” Trump said. “Canada would love it. Canada wants it. They need it.”

In December, U.S. Trade Representative Jamieson Greer suggested that the U.S. could withdraw from the trilateral agreement in favor of new bilateral trade agreements with Mexico and Canada. That would upend rules governing approximately $2 trillion of annual trade volume and supply chains built up across borders.

In a Jan. 27 address to Canada’s House of Commons, Carney said there is “almost nothing normal now in the United States,” during remarks on trade and said he told Trump in Davos that Canada would respond to tariffs by continuing to pursue increased trade with other countries and replace U.S. imports with domestic products. But the Canadian PM said that while his country and the U.S. now have a “new relationship,” his government would “be prepared to respond positively” to building upon the current dynamics through the USMCA.

On Jan. 29 Trump also posted that he would begin tariffing Canadian aircraft at 50% and order the safety decertification in the U.S. of certain business jets built in Canada, if Canada does not move forward on safety certification of U.S.-made Gulfstream jets. 

South Korea

Trump surprised observers by threatening to blow up a trade framework announced last fall by his administration and the government of South Korea, accusing the Asian country of taking too long to implement the investment part of the deal. The agreement made last October called for 15% tariffs on South Korean imports into the U.S., despite a free trade agreement that went into effect between the two countries in 2012 and eliminated most duties and other trade barriers, and $350 billion in South Korean investment in the U.S., including $200 billion for semiconductors, batteries and nuclear energy.

In a social media post Jan. 27, Trump said he would increase tariffs on South Korean products to 25%, after initially pledging to do so in 2025 before announcing the trade framework with South Korea.

“South Korea’s Legislature is not living up to its Deal with the United States,” Trump wrote.

South Korea’s leader, Lee Jae-Myung, said he did not have any warning of Trump’s new threat. Under the deal with the U.S., the country agreed to invest up to $20 billion a year, while setting aside another $150 billion for investment in U.S. shipbuilding operations. Finance minister Koo Yun-Cheol recently told Bloomberg News that ​the first tranche of investment would likely not be made in the first half of this year, because of the time needed to assess and select projects.​

A day after he posted the new tariff threat on social media, Trump told White House reporters on Jan. 28, “We’ll work something out with South ‌Korea.”

Iran

The president has not yet followed through on a Jan. 12 social media post promising 25% “secondary” tariffs on imports from countries that do business with Iran.

The White House has not issued an executive order or proclamation amending current economic sanctions on Iran to include new duties on countries such as China, the United Arab Emirates, Turkey, Iraq, India, Pakistan and multiple EU members. 

The U.S. already has a comprehensive Iran economic sanctions regime, in place since 1979. Economic sanctions typically freeze assets and prohibit trade, although the Treasury Department can provide licenses for exemptions. The sanctions include secondary measures against entities from other countries that do business with sanctioned Iranian entities, such as the Iranian Revolutionary Guard Corps.

Those sanctions are generally applied at the individual and entity level, rather than nationwide, making them more targeted economic measures than tariffs. Additional tariffs on imports from third-party countries would be less targeted than existing sanctions and could prompt retaliatory actions by those countries.