Canadian steel industry warns of 'unrecoverable consequences' to U.S. double-tariff threat

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President Donald Trump’s latest trade threat — this time to double already punishing 25 per cent tariffs on all U.S. steel and aluminum imports — would trigger ‘unrecoverable consequences,’ according to Canada’s steel industry.

But such a 50-per-cent added-on tax, announced to begin as soon as Wednesday, would also have dire repercussions for U.S. businesses and U.S. consumer prices, according to a Michigan business expert on global supply chain management.

“The impacts of these tariffs will create a huge ripple effect,” said Wayne State University assistant professor Jeffrey Rightmer, who has decades of industry experience in operations/supply chain management.

“The U.S. doesn’t have the capacity to meet the demand. The (U.S. domestic) companies will also raise the prices because they can,” he told the Star. “Steel consumers don’t have any choice but to buy more expensive imported steel and aluminum.”

Rightmer said American companies will still have to buy the more expensive metals, creating big tariff bills that could threaten the stability of smaller manufacturers in the supply chain. The United States imports about 25 per cent of its steel needs annually while it only produces 50 per cent of the aluminum it requires. Canada is the largest supplier of both imported metals to the U.S. and a 50 per cent tariff would be devastating for those industries.

Rightmer’s prediction of rising prices was immediately validated, with market prices for aluminum, hot rolled coil steel and copper rising on Monday following Trump’s end-of-week announcement.

The cashflow problems that would likely develop from longer-term tariffs, he added, would be reminiscent of the financial crash that required government bailouts for GM and Chrysler and several U.S. banks.

“It’ll be 2007-2008 all over again,” Rightmer said. “Companies got cash-strapped and couldn’t survive.

“Companies have to import some stuff because they can’t get it here. They have seven to 10 days to pay their tariff bill.

“Lots of smaller companies have profit margins of just one or two per cent at best. The terms with their customers can be 30 to 90 days for payment, so they develop cash flow problems.”

Rightmer said the Tier I suppliers will likely be able to handle things for a bit, but he expects to see bankruptcies among the Tier II and III suppliers.

“Some little companies won’t even declare bankruptcy, they’ll just go out of business,” Rightmer said.

“Bigger companies won’t know that until the industry ramps up again and suddenly you can’t get something from them you need.”

Rightmer said companies are being hamstrung by the uncertainty created by Trump’s tariff policies.

The timeline to move an automotive assembly plant to the U.S. is three to five years and is even longer to build new steel mills and aluminum smelting plants.

“Executives making these decisions are asking, ‘Can I just wait three to five years and we’ll have a new president, a new Congress and maybe a new Senate and there could be a lot of change?’” Rightmer said. “It’s really a roll of the dice right now.”

Rightner said the likely outcome of the doubling of tariffs will be net job losses in both Canada and the U.S.

A 2020 study by Princeton and Columbia universities and the Federal Reserve Bank of New York looked at the impact of Trump’s 25 per cent tariff on steel in 2018 during his first administration. For every job created in the U.S. steel industry there was a loss of 75 downstream jobs in steel-consuming industries.

However, there’s no escaping the fact a much higher 50 per cent tariff would be more devastating to Canadian shipments to the U.S. than the 38 per cent decline experienced in June 2018. Aluminum exports dropped 19 per cent in 2018 compared to 2017.

A 50 per cent tariff would essentially close the U.S. market to Canadian firms, the Canadian Steel Producers Association (CSPA) said in a statement. The Canadian steel industry directly employs 23,000 Canadians, with the U.S. accounting for 50 per cent of its market.

“Steel tariffs at this level will create mass disruption and negative consequences for our highly integrated steel supply chains and customers on both sides of the border,” said CSPA president and CEO Catherine Cobden.

“It is vital that the government of Canada responds immediately to fully reinstate retaliatory steel tariffs to match the American tariffs and to implement as quickly as possible new tariffs at our own borders to stop unfairly traded steel from entering Canada.

“This latest announcement from the Trump administration is a further blow to Canadian steel that will have unrecoverable consequences.”

Laval International president Jonathon Azzopardi said a targeted response is required. He noted a reciprocal 50 per cent tariff on U.S. steel would only heap more misery on Canadian manufacturers.

“I do not support matching reciprocal tariffs,” said Azzopardi, a former chair of the Canadian Association of Mold Makers whose Oldcastle-based firm ships the bulk of its production to the U.S.

“It’s not the way to solve this problem. Get to Washington and get a deal done, nothing short of that is even worth talking about.”

One alternative the federal government has announced is requiring the use of Canadian steel and aluminum in any domestic infrastructure or defence project.

That policy was greeted enthusiastically by the United Steelworkers Canada.

“The United Steelworkers (USW) welcomes the federal government’s decision to require Canadian steel and aluminum in national infrastructure and defence projects,” USW national director Marty Warren said in a statement.

“This is a commitment Steelworkers have championed for many years. USW has consistently called for strong Buy Canadian policies to protect good jobs and rebuild domestic supply chains, especially in the face of a worsening trade war and unfair global competition.”

Dwaddell@postmedia.com

Twitter.com/winstarwaddell