If U.S. President Donald Trump decides to impose a second round of aluminum tariffs on Canada in the coming weeks, as recent reports have suggested, some industry workers are warning the effect would likely hurt U.S. businesses more than those in Canada.
Bloomberg reported on Tuesday that the U.S. plans to re-impose a tariff of 10 per cent on Canadian aluminum coming into the U.S. by the end of the week unless the Canadian government agrees to limit aluminum exports.
While the Canadian government has not confirmed whether it’s been notified of any such threat by the Americans, business experts who work in the industry say such a move would be yet another “test” on Canada-U.S. ties and be “counterproductive” for American businesses.
“What tariffs ultimately do is they don’t punish the intended target,” said Maryscott Greenwood, CEO of the Canadian-American Business Council.
“What they do is they punish American producers and American consumers and manufacturers. … As a matter of policy, it’s counterproductive.”
If the Trump administration does impose a new round of tariffs on July 1, that would mark two years to the day since it last imposed steep tariffs of 25 per cent on Canadian steel and 10 per cent on Canadian aluminum. That move came as part of a bid to exert pressure in the renegotiation of the new NAFTA deal, now sometimes called CUSMA or USMCA.
Canada and the U.S. included a side letter in the renegotiated deal that exempted Canadian steel and aluminum from the tariffs, which remained in place for some other countries.
A second round of tariffs would come amid the significant economic slump caused by the global coronavirus pandemic and its resulting shutdowns of many parts of public and consumer life.
The U.S. economy saw its largest contraction in more than a decade earlier this year, shrinking by 4.8 per cent and ending the economic expansion that’s been going on since 2014.
American unemployment soared in April to the highest point since the Great Depression.
Economic shocks from the pandemic have hit Canada as well: the unemployment rate nationally sits at a record 13.7 per cent and, according to Statistics Canada, the number of Canadians experiencing food insecurity is up sharply.
As consumer habits adapt to the chaotic economy, factories producing goods like automobiles have also rolled back or shut down production, leading Canadian aluminum producers to shift from producing refined products to more basic commodities.
Jean Simard, president and CEO of the Aluminum Association of Canada, said that shift in the balance of exported aluminum products is what’s being wrongly interpreted by American officials as a “surge” in aluminum into the U.S. market.
Any attempt to levy tariffs on Canadian aluminum because of that misunderstanding, he said, hurts American producers by injecting uncertainty into their supply chains.
“It sends a very disruptive signal more to the U.S. industrial base than to Canada,” said Simard.
“We’ve been through that — we understand how it works now. And the end result is far more of an additional cost to American end users of the metal than a direct impact on Canada and its exports.”
Canada exports roughly 76 per cent of its aluminum to the U.S. each year as part of a highly-integrated market worth about $14.6 billion annually, according to the Canadian government.
There are 10,500 aluminum industry workers in Canada and one of the major purchasers of Canadian aluminum is the American defence and security industry.
Because of that, Canadian officials rejected claims by the Trump administration when it last levied the tariffs in 2018 under the guise of a claim that Canadian aluminum posed a national security threat.
“We will always defend Canada’s aluminum sector and its workers. The free flow of goods and services, including aluminum, is important for jobs and economic growth in both of our countries,” said Katherine Cuplinskas, press secretary for Deputy Prime Minister Chrystia Freeland, in an email on Tuesday.
“We firmly believe that our aluminum exports do not harm the U.S. market. We are emphasizing this in our ongoing conversations with our American partners.”
Freeland’s office said on Wednesday when asked for more information that it would not be adding to that statement at this time.
In an open letter to Prime Minister Justin Trudeau on Wednesday, Unifor national president Jerry Dias urged the government to reject any demands by the American administration to limit exports.
“We must not allow these bullying tactics to succeed,” Dias wrote.
“I urge you to stand strong in the face of this misinformation campaign and reject any quotas that would disrupt the Canadian aluminum industry once again and lead to unnecessary layoffs.”
The U.S. agreed to exempt Canada from steel and aluminum tariffs imposed on other nations under Section 232 of the Trade Expansion Act in May 2019 as part of negotiations on the new NAFTA deal.
Dias says in his letter that while the American Primary Aluminum Association, which represents small U.S. producers, has asked U.S. Trade Representative Robert Lighthizer to get rid of that exemption, the main industry group called The Aluminum Association is urging the exact opposite.
“The country depends on the products manufactured by the aluminum industry to support healthcare, aerospace, transportation, construction, defense, packaging, infrastructure and many other critical segments of the U.S. economy,” that association wrote in a May 2020 letter to Lighthizer.
“In turn, the U.S. aluminum industry depends on a reliable source of Canadian primary aluminum, which has been a key part of the domestic supply chain and national security apparatus for decades, to meet demand for these aluminum products.”
The letter goes on to stress: “even if every U.S. aluminum smelter was operating at full capacity, aluminum manufacturers would still require a mix of domestic and imported primary aluminum” in order to meet the U.S. domestic demand.
Conservative MP Randy Hoback, who serves as the party’s international trade critic, warned the federal government must prepare to hit back at the U.S. if it pursues another round of tariffs against Canada.
“The Trudeau government’s message to the U.S. must be that we will not restrict our exports,” Hoback said. “Justin Trudeau must be prepared to retaliate on any tariffs placed on Canadian aluminum and follow through on that threat.”
Greenwood said the uncertainty created for businesses with tariffs would only add to the strain on the Canada-U.S. relationship.
“It’s not healthy for the Canada-U.S. relationship to continue to go back to tariffs. It’s a worn out, tired play,” she said.
“It does increase the strain, but it’s not new. Canada is used to it. The world is used to hearing these kinds of things coming out of Washington, D.C.”