Eyes turn toward steel and aluminum tariffs
With USMCA trade deal reached and tariffs still in effect, steel industry experts wonder what is next
Steel and aluminum tariffs are certain to be lifted later this year in the wake of the newly renegotiated deal to replace the North American Free Trade Agreement, but analysts believe quotas will replace them in an effort to keep a lid on Canadian imports to the U.S.
The question then will be how restrictive those quotas will be and the impact they will have on Canadian steelmakers such as Hamilton’s Stelco and ArcelorMittal Dofasco, says University of Toronto steel expert Peter Warrian.
“The devil is in the details. It will probably be better than the tariffs but it could limit their ability to expand into future business in the U.S.,” he said.
President Donald Trump Monday praised the now-named United States-Mexico-Canada Agreement (USMCA) as a victory for all three countries. He said his tough negotia-
tion style — including the ongoing 25 per cent tariff on steel and 10 per cent tariffs on aluminum — was the medicine needed to finally strike the deal that was made Sunday.
“This landmark agreement will send cash and jobs pouring into the United States and into North America,” Trump said in remarks at the White House. “Good for Canada, good for Mexico.”
“Without tariffs, we wouldn’t be talking about a deal,” Trump said.
Canada’s automakers were the big winners. Many were expecting tariffs against the sector as NAFTA talks stalled. But instead the industry emerged with a side deal that would impose trade restrictions only if production greatly exceeded current levels.
(Canada exports 1.8 million cars a year to the U.S., the tarifffree level was set at 2.6 million cars. Likewise, the U.S. said no tariffs on US$34.2. billion worth of Canadian auto parts coming into their country, 40 per cent higher than the current value.)
“I think 120,000 autoworkers can take a deep sigh of relief today and probably hundreds of thousands more who gain their employment because of the auto sector. I think this is an important deal,” said McMaster University’s Greig Mordue, ArcelorMittal Dofasco chair in advanced manufacturing policy. “That was the threat all along.”
David Adams, president of Global Automakers of Canada, said “One of the largest things is just having certainty now in terms of what the trading relationship is, and what the business environment is going to be going forward. Because business desperately needs certainty and uncertainty is anathema to getting things done.”
“This a victory for Canada because that amount is actually well above what we currently send south of the border. That gives us confidence a side deal on Canadian steel and aluminum can also be reached before the new NAFTA is ratified.” said Frederic Bastien, an analyst at Raymond James, in a note.
But critical of the deal was Canada’s dairy industry, which railed against expanded U.S. access to the domestic dairy market and the elimination of competitive dairy classes. Bruno Letendre, head of the association that represents Quebec’s milk producers, said the concessions are the equivalent of 13 days fewer production for his members.
“We’ve been sacrificed,” he said in an interview. “There’s no doubt about that. Supply management has been sacrificed.”
Hamilton Chamber of Commerce CEO Keanin Loomis said, “There was concern that we would not reach a deal at all and that this would be going into 2019. So I was really happy to hear we have a deal. I think it is a huge and positive development.”
But he noted, the “issue for us in Hamilton is they have not eliminated the steel tariffs. We still have some way to go. Hopefully the agreement so far is a necessary precursor before the tariffs are eliminated as well.”
Joe Galimberti, president of the Canadian Steel Producers Association says he is also hopeful. “Maybe a similar solution used with the auto sector would be possible in the context of steel and aluminum. We know the federal government is engaged on our behalf in these negotiations. So maybe there is some daylight.”
McMaster University business professor Marvin Ryder said he expects the side deal with the auto sector will be a template for new rules for steel and aluminum imports into the U.S.
“I think it will mirror the deal with the auto sector. In other words, Canada and Mexico will agree to some quotas on the amount of steel and aluminum that can enter the United States in exchange the tariffs will go away,” he said.
“I think there is enough halo of good news out of all this, that sooner, rather than later, we’ll sort out the steel and aluminum tariffs and go back to the way they were with something that would give the Americans comfort.”
Warrian believes quotas are definitely in the offing for Canadian steel and aluminum makers.“And the question is how much the quotas might affect long term investment,” said Warrian. Canadian steelmakers have so far not felt the full weight of the Trump tariffs, he said, because soaring steel prices are mitigating the impact.
But the uncertainty has made it difficult for them to sign deals for next year and 2020. Loomis contends big companies are doing well with the higher steel prices but smaller firms are having great difficulty competing in the U.S. with the tariff in place.
Ryder believes, “the sooner they sign the side deal for steel the better. The sooner we can get the marketplace to understand what the future looks like, the better it will be for companies to get orders in 2019 and 2020.”