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The United States-Mexico-Canada Agreement (USMCA), formerly known as NAFTA, may have been signed, but steel and aluminum tariffs remain in place. These affect the HVAC, plumbing and refrigeration sector.

“It’s been a very difficult year,” says Steve Finlay, VP Canadian Sales for Imperial Manufacturing Group. Imperial is a Canadian company that sells vents, ducts, grills, pipe, fittings and studs in both countries, operating manufacturing plants in Missouri and New Brunswick. “We’ve had two price increases passed along to our customer base this year, which is unprecedented. Our US operation has no choice but to import certain products. And they got hit with the 25% tariff.”

“I think the consumer will end up paying more on both sides of border,” says Rick Gosselin, VP of Operations for TML Supply, a wholesaler in Ontario. “I think it will certainly increase inflation next year. The housing market could be affected. It will probably impact numerous industries. Right now we’re seeing a lot of price increases.”

The tariffs were established by the US administration in an effort to correct a U.S. steel and aluminum trade deficit of about 20 million metric tons, which has been relatively constant for about 10 years. The U.S. exports about 8 million metric tons annually, mostly to Canada and Mexico. It imports from numerous countries, including Canada.

On July 1, Canada imposed countermeasures against $16.6 billion in imports of steel, aluminum and other products from the United States as a response to U.S. Section 232 tariffs. By November 1 it had collected $597 million in surtax revenues. In the Fall Economic Statement, Finance Minister Morneau described how these and other funds totaling about $2 billion would be used to provide relief for Canadian companies affected by the tariffs. 

  • Remissions and relief of surtaxes $112 M
  • Business Development Bank of Canada & Export Development Canada commercial financing and insurance $1,700 M
  • Helping businesses explore new markets $50 M
  • Extended work-sharing and labour market development agreements $75 M
  • Strategic Innovation Fund: measures announced June 29  $250 M

Says the government: “The Canadian and U.S. steel and aluminum industries are deeply integrated, and underpin continental supply chains that strengthen the global competitiveness of the North American economy.”

“Canada buys more American steel than any other country in the world, accounting for some 50% of US exports. In 2017, about US $14 billion of steel was traded between Canada and the United States.”

“On aluminum, Canada and the U.S. share a highly integrated market with combined trade of more than US $11.4 billion annually. About 84% of Canada’s primary aluminum production is exported to the United States, where it is used as an important input for further processing into products for US domestic and export markets.”

The white house theory seems to be that tariffs and other protectionist practices could provide American domestic companies with a competitive advantage, and an incentive to buy locally, thus stimulating more local production. This could make sense under a mathematically precise economic model in which everything else remains equal and interdependence was irrelevant.

“But supply chains are not that easy to change,” says Finlay. “Product specifics, relationships, when we’re forced to do so, we have to look around at other countries, other sources of supply. But it’s not simple. Some people are good at some things and not at others. We buy different things domestically, than we buy internationally.”

A home grown U.S. manufacturing operation for every imported product would require consideration of production volumes, geographies, tooling, commercialization, branding, antidumping duties (AD), countervailing duties (CVD), associated suspension agreements, and government safeguards. Some of these are described in Canadian government material as “internationally agreed upon mechanisms to address the market-distorting effects of unfair trade, or serious injury or threat of serious injury caused by a surge in imports.”

“Now that the USMCA is signed I think they can find a way to agree to remove the tariffs,” says Finlay. “They were said to be implemented because of national security, and we know that’s not right. We anticipate that they will be reduced or eliminated, but when this will happen is anybody’s guess. Perhaps by summer.”

“Hopefully it will settle down and they will be eliminated,” says Gosselin. “U.S. buyers are now paying more for raw material, whether they are importing it with the tariff or from local sources. It’s driving up the cost of furnaces, air conditioning units, water heaters…I’ve talked to a few manufacturers. None of them were expecting immediate relief and they’re expecting more price increases.”