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Key Concepts

• IEPA Tariffs (Emergency Tariffs): Tariffs imposed by the US on Canadian goods under the International Emergency Economic Powers Act (IEPA), initially in response to the perceived fentanyl crisis.
• CUSMA (Canada-United States-Mexico Agreement): The trade agreement replacing NAFTA, providing exemptions for many Canadian products from US tariffs.
• Sectoral Tariffs: Tariffs imposed on specific sectors, such as steel and aluminum, distinct from the IEPA emergency tariffs.
• Congressional Approval: The requirement for US Congressional approval to reimpose IEPA tariffs beyond an initial 150-day period if deemed unconstitutional by the Supreme Court.
• Midterm Elections: US Congressional elections held midway through a president's term, influencing lawmaker behavior and policy priorities.
• Refund Claims: Requests by businesses for reimbursement of tariffs paid, potentially triggered by a Supreme Court ruling deeming the tariffs unconstitutional.

US House Vote on Trump Tariffs & Implications for Canada

This discussion centers on the US House of Representatives’ recent vote (219-211, with six Republican defections) to rescind tariffs imposed by former President Donald Trump on Canadian goods. Lachland Wolers, Global Head of Indirect Taxes and Global Head of Data for Tax and Legal at KPMG Canada, provides analysis of the legal, economic, and tax implications of this vote.

The Symbolic Nature & Underlying Significance of the Vote

While acknowledging the potential for a Presidential veto, Wolers emphasizes the vote’s broader significance. The core issue revolves around the legality of the IEPA tariffs – emergency tariffs imposed on Canada related to the fentanyl crisis. If the US Supreme Court rules these tariffs unconstitutional, President Trump would likely need Congressional approval to reimpose them long-term. This vote signals potential Congressional resistance to such reimposition.

As Wolers states, “At a surface level…I think people would look at this as being mere symbolism…But I think the bigger picture issue here is actually what lies beyond this.”

Congressional Dynamics & the Midterm Elections

The defection of six Republican lawmakers is highlighted as indicative of growing pressure on US representatives, particularly as the midterm elections approach. Wolers predicts increased instances of lawmakers deviating from party lines due to reelection concerns. Furthermore, he anticipates a heightened focus on mitigating the impact of tariffs on the cost of living for average Americans as the elections draw nearer.

“I would expect as we move closer towards the midterm elections…you’re more likely to see some of these congressional lawmakers make decisions on their own rather than necessarily following the party line.”

Potential Tax & Legal Repercussions of Tariff Rescission

The discussion explores the potential consequences should the Senate also vote to rescind the tariffs, overriding a potential Trump veto. While the IEPA tariffs are relatively high in theory, exemptions under CUSMA mean that 85-90% of Canadian products are not actually subject to them. However, a Supreme Court ruling deeming the tariffs unconstitutional would trigger a “flurry of refund claims” from businesses that have paid them.

Wolers outlines a potential scenario: the President could temporarily reimpose tariffs up to 15% for 150 days, but beyond that, would likely need to rely on sectoral tariffs or secure Congressional approval – a potentially difficult task, especially coinciding with the midterm elections.

Canada’s Strategy: “Stalling for Time”

Wolers suggests that the Canadian government, under Prime Minister Trudeau, is adopting a strategy of delaying resolution, recognizing that time is advantageous. The longer the situation remains unresolved, the more challenging it becomes for the US to reimpose tariffs, and the greater the possibility of the US administration becoming preoccupied with other issues.

“I think this is informing the approach that Prime Minister Trudeau and the Canadian government’s adopting, which is in essence, we’ve got to stall for time. Time is our friend here.”

The US Supreme Court & CUSMA Review

The conversation also touches on the pending US Supreme Court decision regarding the constitutionality of the IEPA tariffs. The Court’s decision timeframe is open-ended, extending potentially to mid-year. Wolers notes that a delay in the ruling could suggest the Court is leaning towards upholding the tariffs, as a swift decision would be expected if they were deemed unconstitutional, given the ongoing collection of tariff revenue.

The upcoming review of the CUSMA agreement is also mentioned. Any significant changes to the agreement would require Congressional approval, further reinforcing the potential for Congressional oversight of trade policy.

Conclusion

The US House vote represents a potential shift in the political landscape surrounding US-Canada trade relations. While a Presidential veto remains a possibility, the vote signals growing Congressional skepticism towards the use of tariffs, particularly in light of the upcoming midterm elections and the pending Supreme Court decision on the IEPA tariffs. Canada appears to be strategically leveraging this situation by delaying resolution, hoping to further complicate any attempts to reimpose tariffs. The ultimate outcome hinges on the Supreme Court’s ruling and the evolving political dynamics within the US Congress.