The U.S. slapped Canada with hefty tariffs on steel and aluminum on Thursday — a move that could make Canadians pay more for cars, refrigerators and beer (just to name a few).
The tariffs — 25 per cent on steel and 10 per cent on aluminum — officially kick in Friday at midnight, and could cost the Canadian economy around U.S. $3.2 billion a year.
This is because Canada is the biggest supplier of steel and aluminum to the U.S., and exports nearly 90 per cent of its steel to the U.S. — more than any other country, according to the Canadian Steel Producers Association.
“The benefit of free trade is gone here,” Walid Hejaz with the Rotman School of Management at the University of Toronto said. “What’s going to happen to the price of steel and aluminum? The price is going to rise and jobs will be lost.”
“Canada has been held hostage to American policy,” he added.
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Why did Trump impose tariffs in the first place?
The tariffs were originally announced on March 1 when U.S. President Donald Trump said that the United States was being treated unfairly. He said the import taxes will help protect American jobs and boost the U.S economy.
The Trump administration also cited national security interests for implementing the tariffs, saying the military needs a domestic supply for its tanks and ships.
Canada, Mexico and the EU were all granted a temporary exemption from the tariffs when they were first announced, but that expires Friday.
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How it impacts Canada’s steel industry
About half of Canada’s steel production is exported, mostly to the U.S. And with the new 25 per cent tariff, U.S. demand for Canadian steel will “fall dramatically,” Hejez said.
“In Canada, everyone working in the steel industry must be so worried; we export a lot to U.S. and also import from U.S.,” he said. “There will be job losses here because the U.S. market could have job losses, which impacts Canada.”
Steel is produced in five provinces, employing around 22,000 people across Canada. Production is concentrated mainly in Ontario.
Three Canadian cities are heavily dependent on the steel industry — Sault Ste. Marie, Ont., Hamilton, Ont., and Sorel-Tracy, Que., according to the Canadian Steel Producers Association (CSPA).
Hamilton, which is often dubbed Steel City, has about 10,000 residents working in the industry. It produces about a third of the Canadian steel that’s exported to the U.S.
Keanin Loomis, CEO of the Hamilton Chamber of Commerce, explained why that’s significant: “That represents about $2 billion in local procurement, and conservatively that means there are about 30,000 other jobs that are reliant upon the steel industry here in Hamilton. Just in Hamilton.”
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How it impacts Canada’s aluminum industry
Canada exports to the U.S. around 84 per cent of the 3.2-million tonnes of aluminum it produces annually, which represents two-thirds of America’s total aluminum imports, according to the Aluminum Association of Canada.
There are around 8,300 jobs in the aluminum sector in Canada — and a majority of them are in Quebec.
Harbor, an aluminum industry consulting firm, predicted the import duties would cause the price of machinery, electrical equipment, appliances, cars, trailers and furniture to rise.
How does this affect Canada’s economy?
According to a report by the Washington, D.C.-based Peterson Institute for International Economics (PIIE), Canada’s steel and aluminum industries would lose US$3.2 billion annually if those tariffs are enacted, in lost exports to the U.S.
That’s the biggest hit for any country and nearly five times as much as the US$689 million that China would lose under the tariffs.
Canada exported $24.1 billion worth of steel and aluminum to the U.S. in 2017, with the vast majority of that coming from Ontario and Quebec.
Even if Canada is expected to lose around $3.2 billion a year from the taxes on aluminum and steel, it still would only have a minimal effect on the country’s GDP, according to Lorne Zeiler, portfolio manager and wealth adviser at Toronto-based TriDelta Financial.
Economic analyses show the tariffs would trigger a GDP reduction of only 0.2-0.3 per cent, Zeiler said.
Brian Belski, chief investment strategist at BMO Capital Markets, said he does not see much impact from U.S. taxes on steel and aluminum on either U.S. or Canadian stock markets.
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How does this affect Canadian consumers?
Essentially, Canadian consumers can expect to pay a little more for products that are imported from the U.S. that are largely made of steel and aluminum.
The price of any steel or aluminum product imported from the U.S. will be higher for Canadians under the new tariffs — that could apply to anything from refrigerators to canned drinks.
Unifor said the tariffs will have a “devastating” effect on jobs across Canada and will also directly impact the cost of items from cars to canned food.
This includes:
Canned products
Products packaged in aluminum, such as beer, could cost more for Canadians after the tariffs are implemented.
In February, a letter released jointly by several organizations whose products are packaged in aluminum — including PepsiCo, Coca-Cola, the Beer Institute, etc. — warned that tariffs would make it more expensive to brew and package beer.
The letter claimed that a 10 per cent tariff on aluminum would cost beer and beverage producers $256.3 million, a 20 per cent tariff would cost $512.5 million and a 30 per cent tariff would run $768.8 million.
Boats
In March, U.S.-based National Marine Manufacturers (NMMA) also released a statement saying aluminum tariffs will make boat production more expensive.
“While these tariffs are meant to protect American manufacturing, they do just the opposite. U.S. manufacturers, like those in our industry, which use American-made aluminum, depend on a competitive global market and fair pricing,” NMMA president Thom Dammrich said in the release.
“The implementation of these aluminum tariffs, in combination with the additional, even larger tariffs on aluminum sheet proposed by the Department of Commerce, will drive up the costs of the aluminum used to manufacture more than 111,000 aluminum boats, such as pontoons and fishing boats, which make up 43 per cent of new powerboat sales each year.”
Cars
Hejazi suggested that Canadians will likely see a bump in the price of U.S.-made automobiles.
“So, now what will happen is that cars that are not made in the U.S. will be less expensive,” Hejazi said. “The steel and aluminum industry in the U.S., those people are unbelievably happy. Every other industry that uses steel, they are infuriated.”
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“So, now everything in the U.S. that uses steel, those prices are going up and that’s going to hurt the car industry,” Hejazi said.
Unifor, which represents Canadian auto industry employees, said the tariffs against Canada will hurt the auto industry on both sides of the border, resulting in higher costs for consumers.
“Canada must take swift action to defend Canadian industries & workers for unjust attacks by the U.S.,” Unifor said in a tweet after the tariffs were announced Thursday.
“The auto supply chain is completely intertwined. A cost increase of this magnitude will drive consumers directly into the arms of Japanese carmakers,” Unifor national president Jerry Dias said in a statement in March when the tariffs were first announced.
— With files from Global News’ Maham Abedi and Adam Frisk