Canada, top exporter of steel and aluminum to U.S., 'flabbergasted' by tariff proposals

Prime Minister Justin Trudeau, seen here in February 2018, called Trump's tariff proposal "absolutely unacceptable."

 

Canadians reacted with a mixture of anger, confusion and resignation this week to President Trump's promise to hit U.S. imports of steel and aluminum with hefty tariffs, upending decades of economic cooperation and integration.

"We're pretty consistently flabbergasted that Canada is at the top of the hit parade of trade villains" in Trump's eyes, said Douglas Porter, chief economist at the Bank of Montreal.

Under the Trump policies announced Thursday, steel imported into the United States would be slapped with a 25% tariff and aluminum with a 10% tariff. The announcement sent shudders through world markets and prompted a global outcry, with European allies and others threatening retaliation.

 Trump often has accused China of forcing U.S. steel and aluminum companies to fold by inundating the market with cheaper materials. But Canada is the largest exporter of steel and aluminum to the United States, supplying $7.2 billion of aluminum and $4.3 billion of steel to the United States last year.

Prime Minister Justin Trudeau called the tariff proposal "absolutely unacceptable," using the same phrase as Foreign Minister Chrystia Freeland, who also threatened retaliatory measures if Canada isn't exempted from the trade actions.

 Trudeau, speaking at an event in Barrie, Ontario, said he had raised the issue of tariffs in the past but didn't indicate whether he had talked to Trump since the announcement.

"We will continue to engage with all levels of the American administration in the coming days so that they understand that this proposal is unacceptable," he said.

It was unclear from Trump's announcement what countries would be subject to the tariffs. More details on the policy were expected to be released next week.

 "We're hoping that reasonable voices are going to prevail" and that Canada will be exempted, said Keanin Loomis, president of the Chamber of Commerce in Hamilton, Ontario, the heart of the Canadian steel industry. "Canadian steel is fair trade. We adhere to tight labor regulations and tight environmental regulations."

But Lawrence Herman, a Toronto trade lawyer, said he doubts Trump is interested in exempting Canada from the tariffs. Trump remarked this week in a meeting with U.S. governors that Canada was "very smooth" in its trade relations.

"We lose a lot with Canada. People don't know it," Trump said. "They have you believe that it's wonderful, and it is — for them. Not wonderful for us. It's wonderful for them."

Herman said he is convinced that if the tariffs remain, Canada will retaliate.

"I don't think there's any doubt about that. Canada has to respond. I would target U.S. wine for starters," he said. "Canadian consumers are not going to be prejudiced" because there are many alternative sources of wine in the world. Other U.S. products could follow, he predicted.

Jean Simard, president of the Aluminum Assn. of Canada, said that his industry has been integrated into the U.S. economy for more than 50 years and that the Pentagon considers Canadian aluminum production a strategic military supply.

"There's no rationale," Simard said. "It doesn't make sense. It's just protectionism.

"We're by far the largest supplier to the U.S.," he said, with annual output of 3.2 million metric tons of aluminum coming from 10 Canadian smelters and 90% of that output heading south of the border. Canada supplies about half of U.S. aluminum requirements, according to the Aluminum Assn.

Simard said that 9 of 15 U.S. aluminum smelters have closed in the past four years, but he blames their demise on a surge in Chinese production and the fact that they face high power costs and never have been modernized.

 In 2000, Canada accounted for 10% of global aluminum output and now accounts for 5%. China's share rose from 11% to 55% in the same period, according to the association.

Not accustomed to being cast as the villain, Canadians are now finding themselves being considered a rival by the U.S. president, pollster Nik Nanos said.

"I don't think Canadians feel they are being singled out," he said, noting Trump's diatribes against Mexico, China and Germany. "For Canadians, it's more resignation with the environment we live in."