The first skirmishes of an unexpected trade war between Canada and the United States are underway. And while the ultimate impact is still hard to predict, two Canadian companies on the front lines expect collateral damage on both sides.
Jon Hobbs, president of AltaSteel, a Canadian company that produces about 300,000 tonnes of hot-rolled steel a year, employs almost 350 people at a factory just outside Edmonton.
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About 20 per cent of the company’s products are bound for the U.S. market, so Hobbs and his company are keenly aware of what’s at stake in the current trade spat.
Trump’s steel tariffs “are being discussed at a national level,” he says, “but the impact is being felt locally very quickly.”
We talk to Canadian steel producer John Hobbs, president of Alta Steel about how Trump’s new tariffs will affect his business, and how his American customers have been reacting. <a href=”https://t.co/z6d9FauiPf”>pic.twitter.com/z6d9FauiPf</a>
As of Friday morning, products that AltaSteel’s U.S. customers ordered weeks and sometimes months ago are sitting on trucks, waiting to be shipped out and delivered. But if they’re bound for the U.S., his customers are facing 25 per cent higher costs than what they had agreed to when they placed their order.
“We’re not paying the tariff,” he said. “The U.S. consumer is paying that tariff to the U.S. government.”
Which means job No. 1 for Hobbs on Thursday was to reach out to his customers with his core message: don’t panic.
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“The first thing we want to do is reassure them,” he says. “We need to be sure we don’t react too quickly.”
In some cases, AltaSteel’s U.S. customers have been with the company for more than 20 years, but they’re now facing an unsettling conundrum: they can either keep buying the same product they have relied on for decades and eat the added cost, passing it on to their own customers in the form of higher prices, or they can look elsewhere for steel, either sourced from the U.S. or a country Donald Trump isn’t slapping a tariff on — yet.
While he’s confident “that there is still a good value proposition for our product,” as he puts it, he does admit the future looks a more uncertain than it otherwise would have.
“We could still lose U.S. customers,” he says. “What we have to do here is start to look at what alternative domestic and export markets we might enter to offset this volume loss.”
Job losses are possible, he acknowledges. “We are going to try everything we can to offset these impacts before we adopt the mindset of what does this mean for Canadian jobs,” he says, “but clearly the threat is there.”
If AltaSteel’s U.S prospects are looking dimmer, the company may find its outlook domestically has brightened.
Take the Toronto-area company of Tubular Steel, for example. Despite the name, Tubular doesn’t actually make steel. Rather, they take the raw product and turn it pipes, bars and tubes that go into finished products like car seats, exercise equipment and office furniture.
The company says its products end up in about half of all the cars made in North America, and about one quarter of their sales go directly to the U.S. But given how interconnected the auto supply chain is, Tubular’s products might crisscross the border multiple times.
“Our customers are people who take our tubes and turn them into other things,” sales manager Nicholas McDonald says, “and those are the customers that we really care about.”
“If we can continue to sell to them,” he says of his Canadian customers, “then we don’t have to worry about selling in the United States directly.”
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In the rapidly changing new rules, Tubular may get raw steel from the U.S. or Canada, and now have to pay different prices depending on the source. At the other end of the supply chain, they compete with U.S. companies that will now face tariffs on similar products being imported into Canada, after the federal government’s $16 billion worth of retaliatory measures on Thursday.
“It’s going to [hurt] some parts of the industry,” he said, “and it’s going to add gasoline to other parts.”
If steel suppliers in Canada find themselves blocked out of the U.S. in any way, it could represent a buying opportunity for companies like Tubular to start selling farther afield.
“What’s going on now is an opportunity for companies like ourselves and our customers,” he says, “[because] we can sell those goods, not just to the United States, but we can potentially sell them overseas and in other markets.”
Ultimately, while the tariffs outline so far will impact the business in good and bad ways, McDonald doubts they will actually be in place for long.
“At the end of the day I don’t think it’s going to change much,” McDonald says. “Because it’s just unrealistic.”
While he, too, is hopeful of keeping his loyal U.S. customers and growing his client base elsewhere, Hobbs is blunt in his assessment of who’s going to suffer most.
“There’s only one loser in all this,” he says, “and it’s the steel consumer.”
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