Just the Facts

Five Facts on Tariffs and the G-7

By No Labels
June 14, 2018 | Blog

This past weekend, leaders of the world’s seven largest economies—Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States—met at the G-7 summit to discuss issues such as the global economy, international security, and energy policy.  This year, trade was at the top of the agenda, as numerous member countries butted heads over tariffs on goods such as steel, aluminum, pork, and dairy.  Here are 5 facts on the intersection of tariffs and the G-7 summit.

Since World War II, the global community’s stance on tariffs has shifted in the direction of free trade

The General Agreement on Tariffs and Trade (GATT) was signed in 1947, after an attempt to establish an international trade organization failed. Participating countries hoped to promote international trade by reducing levies and other trade barriers. Tariffs were successfully lowered under GATT.  However, in 1995, following multiple economic recessions in the 1970s and early 1980s, members of GATT endeavored again to create an international trade organization.  Their efforts were successful and resulted in the creation of the World Trade Organization, complete with 164 member states, whose goal “is to ensure that trade flows as smoothly, predictably and freely as possible.”

Following a contentious G-7 summit, President Trump retracted his endorsement of the summit’s final statement

The G-7 includes the leading developed market economies in the world: Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S. At this past weekend’s G-7 meeting, President Trump made the decision to not endorse the joint statement—which called for a reduction in tariffs and recognized free trade as an engine for growth and job creation—following comments made by Canadian Prime Minister Justin Trudeau, who stated “we will not be pushed around [by the United States].”  The disagreement is the latest in a series of confrontations over trade between the U.S. and Canada.

 

Canada significantly hikes tariffs on dairy products when imports exceed government mandated limits

 While many countries subsidize dairy to protect the industry, including the U.S., Canada’s supply-management system  “sets domestic production quotas and keeps prices stable, thereby guaranteeing farmers a steady income.” Within the quota, American dairy exports to Canada are taxed at a much lower rate.  For example, milk is originally taxed at 7.5%, however, once the quota has been surpassed, the tax rises to 241%.  According to the World Trade Organization, other dairy products can have tariffs that rise to 314%.  Nonetheless, the United States still has a significant trade surplus with Canada when it comes to dairy.  In 2017, U.S. dairy producers exported approximately $227 million while importing approximately $114 million.

 

In response to U.S. tariffs on steel and aluminum, Mexico retaliated by imposing levies on U.S. pork

On June 5, the Mexican government set 10% tariffs on the import of any U.S. pork, with the number rising to 20% by July 5.  The tariffs specifically target pork shoulders and legs, which account for 90% of Mexico’s yearly pork imports from the United States.  This announcement comes in retaliation to the United States imposing 25% levies on steel and aluminum.  Mexico is currently the second-largest market for the United States’ $3 billion pork industry.

 

President Trump is currently contemplating a significant hike to the tax on imported cars and car parts 

The United States is currently the third-largest exporter of cars, with an annual value of $53.6 billion. Additionally, the United States is also the largest importer of automobiles, with an annual value of $179.6 billion.  Currently, the tax on imported cars and car parts is 2.5%. However, President Trump has proposed raising it to 25%, with the hope of spurring domestic production.

 

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