The
tit-for-tat steel and aluminum tariffs between U.S. and Canadian may have been
lifted, but uncertainty remains for these industries and the Canadian
businesses they support — at least until a final trade agreement is signed.
Tariffs of 25 per cent on steel aand 10
per cent on aluminum exports to the U.S, implemented by the Trump
administration, took effect for Canadian producers May 31 last year under
section 232 of the Trade Expansion Act of 1962. (The tariffs had previously
been in place since March, but Canada, Mexico and a few other nations had been
given temporary exemptions.)
In response, Canada put in place similar tariffs on more than $16-billion
of U.S. steel and aluminum imports, and many other products including felt
pens, maple syrup and ketchup.
The duties were lifted in May this year, but not
without some consequences: Canadian steel and aluminum exports to the U.S. fell
to their lowest level in almost a decade, according to Statistics Canada.
Although exports are rebounding, and both industries
are breathing a collective sigh of relief, many companies are concerned about
the future of free trade, especially with a new agreement to replace the North
American Free Trade Agreement (NAFTA) awaiting approval by U.S. legislators.
“You can’t turn sentiment around on a dime,” says
Catherine Cobden, president of the Canadian Steel Producers Association, which
represents the $15-billion industry responsible for about 23,000 jobs in the
country.
NAFTA has been the foundation for the integrated
market for more than 25 years, and Canadian steel and aluminum producers have
been linchpins in the manufacturing supply chain for American and domestic
companies alike, industry associations say.
Ms. Cobden believes the new Canada-United
States-Mexico Agreement (CUSMA) — known as the United States, Mexico and Canada
Agreement (USMCA) south of the border — would help modernize trade. But it must
still be ratified by U.S. Congress, which may not happen soon with the
Democrat-controlled House of Representatives focused on impeaching U.S.
President Donald Trump, who considers the agreement a key achievement of his
administration.
Aluminum producers are also stuck in a holding
pattern, says Jean Simard, president of the Aluminium Association of Canada,
which represents an industry generating about $5.5-billion annual revenue and
employing about 8,500 people.
“The market is very slow,” Mr. Simard says, noting 90
per cent of the approximately 3.2 million tonnes Canada produces is exported to
the U.S.
While demand in the
U.S. is growing, Mr. Simard said companies are hesitant to hire more workers
and expand operations until there’s more certainty with the trade deal.
One key issue for producers is country of origin rules
requiring products have an increased, minimum percentage of components from the
U.S. to avoid trade penalties under the new agreement. For example, automobiles
shipped within North America would have to include at least 75 per cent
regional content, Mr. Simard says.
But many firms are uncertain how rules apply to them
or how they will be enforced. One worry for the Canadian industry, he adds, is
foreign aluminum products coming into the Canadian market and making their way
into the U.S. through manufacturing supply chains, resulting in trade
violations and tariffs.
“It is a regulatory headache for Canada to ensure its
producers can meet the rules and not run into trouble,” he says.
Yet, the need is real to protect the North American
market from dumping aluminum, which happens when foreign companies sell their
product at below-market prices, negatively affecting domestic producers.
“Canada and the U.S. share the same problem, which is
Chinese overcapacity and its impact on the cost and price structure of the
global market,” Mr. Simard says.
Government of Canada data from last year show China produces
more than 50 per cent of world’s aluminum annually. By comparison, Canada is
the third largest producer, accounting for about five per cent of global
product.
Mr. Simard notes China embarked on a major
urbanization strategy about two decades ago that included hiking its aluminum
production dramatically.
Now economic growth in the world’s second-largest
economy has slowed. As a result, China’s aluminum industry is faced with excess
capacity and is looking to external markets. The U.S, concerned about dumping
and under-cutting domestic producers, included China among nations subject to
the tariffs.
The same challenges of oversupply apply to steel, Ms.
Cobden says.
Continue reading New trade era lies ahead for Canada’s steel and aluminum sectors
