In March 2018, amid continuing NAFTA negotiations, the Trump administration announced new tariffs on steel and aluminum products entering the United States from other countries. This announcement caused quite a stir in Canada. Many economists and representatives of Canada’s steel and aluminum industries spoke out against the new tariffs, arguing they unfairly penalized Canada.
Canada is one of the US’s largest trading partners and one of the largest exporters of steel and aluminum to the US. Given those facts, it’s understandable why people are concerned about tariffs. Just how important and influential are steel and aluminum in the Canadian economy?
A US-Focused Industry
Canada once had a booming steel and aluminum industry. Aluminum manufacturing has declined over time. Canada now has no publicly listed companies of any significance in the global steel and aluminum trade.
That doesn’t mean these industries are unimportant. Canada exports almost all of its steel to the US, making Canada the largest source of imported steel for the US economy.
Canadian aluminum currently accounts for nearly half of annual US imports. The proposed tariffs were believed to hit Canada around five times as hard as any other country, with a projected $3.2 billion loss to the steel and aluminum industry. This offers a good idea of the scale of the industry.
The Size of the Problem
Canada exported around $24 billion worth of steel and aluminum to the US in 2017, which accounts for about 1.1 percent of total GDP. In short, steel and aluminum are billion-dollar industries that have a decent share of the Canadian economy. While one percent may not sound like very much, a blow to the steel and aluminum industry would adversely affect Canada’s economy as a whole.
With growth already taking a tumble in early 2018, the tariff news wasn’t well-received.
A Deeper Problem
While looking at the steel and aluminum industries on their own gives one an idea of just how detrimental a blow to these industries would be, it doesn’t truly show the entire scope of the problem.
Both steel and aluminum are intermediary products. They’re created from raw materials, such as iron ore. They then go on to be used in tertiary industries, such as construction and automotive assembly. While the steel and aluminum industries would suffer from imposed tariffs on their own, their losses would have a ripple effect throughout the Canadian economy.
In fact, experts predict that the tariffs would hurt not just Canadian steel and aluminum exports but also exports of finished products such as vehicles. The tariffs could actually harm US industry as well.
NAFTA Negotiations Continue
The proposed tariffs were designed to impose penalties on China, which is a relatively small-scale importer for the US market. The announcement led to increasing concerns of a global trade war, which could lead to a deep recession.
Canada intends to press for exemptions as the US’s largest and most trusted trading partner. The close relations between the two countries must count for something, and this is acknowledged in both Canada and the US. Ongoing NAFTA negotiations could provide the resolution as the White House indicated it would drop tariffs if a “fair” NAFTA deal could be reached.
If the tariffs aren’t dropped, Canada may have recourse through the World Trade Organization (WTO) to impose penalties on US imports. This would escalate the trend towards a trade war, something everyone would do well to avoid.
The picture is clear. While steel and aluminum on their own are quite significant to the Canadian economy, they also have a wider influence on a number of different industries. Factors that affect steel and aluminum will have far-reaching impacts on the Canadian economy as a whole.