Canadian steel and aluminum producers are hoping for another exemption from U.S. President Donald Trump’s tariffs as the strain of operating under the ongoing threat of levies takes a toll on the industry.
Canada and Mexico were temporarily exempted from blanket tariffs of 25 per cent on steel and 10 per cent on aluminum, with the Trump administration tying a permanent reprieve to a renewed North American Free Trade Agreement pact. The latest 30-day exemption is set to expire on Friday.
But as the NAFTA negotiations grind on in Washington and with the Trump administration providing little indication of whether an extension will be granted, the looming possibility of levies is “absolutely” affecting Canadian producers, said Jean Simard, chief executive of the Aluminum Association of Canada.
“We have a whole spectrum of potentially large investments in Canada but in the environment we have now there’s no way to put those projects on the table,” he said.
“And the mom and pop shops, the smaller producers, they are affected too. It’s an industry that’s growing but they can’t make an investment because they could find themselves under a tariff in a matter of days.”
Canada and Mexico were temporarily exempted from blanket tariffs of 25 per cent on steel and 10 per cent on aluminum, with the Trump administration linking a permanent reprieve to a NAFTA deal. The latest 30-day exemption is set to expire on Friday.
Amid reports of faltering negotiations despite round-the-clock efforts, Foreign Affairs Minister Chrystia Freeland has pledged to retaliate if the U.S. slaps levies on Canadian producers.
Meantime, Canadian producers are mired in uncertainty, said Tony Kafato, president of Toronto-based Venture Steel, which processes carbon steel and aluminum for the auto industry and other customers.
“These deadlines, these talks that never get over the finish line, it ultimately gives investment pause,” Kafato said. “We’re seeing very strong demand, but regrettably, I’m hearing from customers that they are holding off on spending or choosing to spend in the U.S. That message is getting stronger.”
Canada’s integrated steel producers are the largest suppliers of imported steel into the United States, accounting for 16.1 per cent of all foreign steel entering the country. Though he is unaware of any cancelled plans for investments in Canada, “I haven’t seen any major investments announced either,” said Joe Galimberti, president of the Canadian Steel Producers Association.
“We’ve been operating in an environment of uncertainty for the last couple of months,” he said. “Clearly a series of 30 day extensions to exemptions does not provide the certainty you’d want to run significant businesses.”
By contrast, U.S. producers are restarting previously idled operations and investing in new ones amid a period of “record confidence,” said John Tumazos, a New Jersey based steel industry analyst. The price of hot-rolled steel has risen above US$890 per tonne, up from $745 per tonne prior to the tariff announcement and nearly double the price before Trump was elected.
Pittsburgh-based U.S. Steel has announced plans to restart one of two blast furnaces and rehire workers at its Granite City Works outside St. Louis, Ill. India’s JSW Steel unveiled plans to spend $500 million to modernize an existing plant in Texas and build a new one. And Arkansas-based Big River Steel is considering a $1.5 billion facility expansion at an existing manufacturing plant in its home state of Arkansas, according to reports.
Tumazos credits the buoyant environment and rising prices to the steel tariffs, as well as the Trump administration’s move to cut corporate taxes to 21 per cent from 35 per cent.
“This is a unique period in terms of optimism,” Tumazos said. “And Canadian producers are benefitting from higher prices too. Prices are the same both sides of the border.”
With the clock ticking down on the tariff deadline, European Union officials are also engaged in talks to secure an extended exemption. The EU had earlier agreed to discussions on increased market access for U.S. products but only if the U.S. first agreed to a permanent exemption from the steel tariffs.
So far, only South Korea has received a permanent exemption from the steel tariffs, in exchange for agreeing to a quota – which limits the amount of steel it can send to the United States each year.
“We continue to hope the exemption will be extended while Nafta talks are ongoing and ultimately there is a positive resolution that doesn’t involve a tariff or a quota,” said Galimberti of the steel producers’ association. “The net effect of quotas is not dissimilar from tariffs. You have limitations in competing for your primary export market which creates a drag on investment and is inherently limiting for employment.”
The impact of tariff threats is being felt in the U.S. too, given the amount of steel Canada exports south of the border and the large quantity of other goods purchased from various states.
“We purchase nearly all of our raw materials from the U.S.,” said Brenda Stenta, communications manager for Essar Steel Algoma in Sault St. Marie.
“Those suppliers are equally concerned in their communities about the impact of any possible tariffs or quotas. It’s a highly integrated market. That’s why you can’t tease the two apart without having serious ramifications on both sides of the border.”