U.S. trade protectionism may be on the rise, says TD Bank. Economists have been worried about a possible trade between the U.S. and Europe, after the U.S. imposed huge duties on steel imports last week.

“To the extent that new trade barriers are put on the table, Canada may be partly exempted due to its membership in NAFTA,” says TD. “From an industry perspective, it is difficult to assess which businesses are the most vulnerable to allegations of unfair practices by U.S. lobbies, but history suggests that agriculture and textiles stand close to the top of any list – with the former being particularly important to Canada.”

Meanwhile, mid-term U.S. congressional elections are set for this fall. “The importance of these elections has raised concern that some candidates may profess support for restrictions on imports to garner support from selected constituents,” say TD economists.

Even after the electioneering is over, TD is worried the risks of new tariffs and duties will remain. “Widening in the already massive U.S. international trade and current account deficits could lead to new trade disputes. Continued strength in the U.S. dollar, which will hamper U.S. international competitiveness, may also fuel complaints from corporate America about domestic market penetration by imports.”

Accusations of unfair foreign competition may also be bolstered by the Continued Dumping and Subsidy Offset Act of late 2000, TD says. Under this legislation, U.S. companies have “an incentive to make dumping allegations, for if the complaint stands, not only are their foreign competitors penalized by anti-dumping duties, but the
domestic companies gain as the recipients of the funds.”

On the other hand, the Bush administration is cognizant of needing allied support for its war against terrorism. “Indeed, with the war still unfolding, the possible desire to impose trade restrictions may be checked by the need to keep allies on side with U.S foreign policy. U.S. protectionism will also be constrained to some extent by the World Trade Organization.”