The reprieve was short-lived. On February 3, Canada and the U.S. negotiated a 30-day pause on sweeping U.S. tariffs (25% on non-energy products, 10% on energy products) proposed on February 1.

Now, as of late yesterday, President Trump has signed a proclamation to impose 25% tariffs on all steel and aluminum imports, including those from Canada. The tariffs are to take effect on March 12.

The ‘on and off’ approach to these threats has cast a cloud of uncertainty over businesses in Canada. As we discussed last week, economic policy uncertainty in Canada is at the highest level recorded.

Sound familiar?

This is not the first time the U.S. has imposed tariffs on Canadian steel and aluminum. On June 1, 2018, President Trump imposed similar tariffs, which were later lifted on May 17, 2019 ahead of the Canada-United States-Mexico Agreement (CUSMA). However, in 2018, aluminum tariffs were set at a lower rate of 10%.

What happened in 2018?

Canadian exports of steel and aluminum to the U.S. fell sharply after the tariffs were implemented in June 2018 according to Statistics Canada. Steel exports jumped between the tariff announcement and the implementation date, but then declined sharply. By May 2019, they were at their lowest level in almost 10 years. Aluminum exports also declined, though more gradually, with an average decrease of 19% during the tariff period compared to the 2017 average.

In June 2019, a month after the tariffs were lifted, exports of steel and aluminum rose sharply.

A review of U.S. studies suggests that the tariffs raised costs for U.S. manufacturers purchasing steel and aluminum inputs and resulted in net job losses in the U.S.

What provinces are most exposed by the steel and aluminum tariffs

The tariffs will disproportionately hit Quebec and Ontario, by far the largest producers and exporters of these products. Quebec is the largest aluminum producer while Ontario produces the most steel.

Alberta is also a producer, though its aggregate U.S. exposure is relatively small (Alberta’s total exports to the U.S. last year were over $161 billion).

Canadian exports of steel and aluminum products were about $35 billion last year, with the vast majority (87%) originating from Ontario and Quebec. This is based on a broad definition, and does not necessarily capture the products that will be subject to the tariff. 

To estimate provincial exposure to tariffs, we isolated the Harmonized System (HS) product codes affected by the tariffs implemented in 2018.* The proposed tariff will include the products subject to the 2018 tariff as well as additional items to be outlined in a forthcoming annex to the proclamation.

A White House Fact Sheet discusses adding “downstream” products, the inclusion of which would increase the size of exports subject to the tariffs.

While the direct hit is largest in the two most populous provinces, all provinces will be impacted through inter-connected supply chains and potential countermeasures that would raise the cost of imports from the U.S. The federal government has not yet announced countermeasures, instead trying to make the case to avoid these tariffs from being implemented in the first place.

With this announcement taking many by surprise following the 30-day truce, businesses from across the country are bracing for more uncertainty ahead—something that will lead to a cautious approach to business investment. Premiers and federal Cabinet Ministers are in Washington this week to make a final push to avoid these punishing tariffs.

*We use the list of products on page 70 of the U.S. International Trade Commission’s report on economic impacts of the tariffs implemented in 2018. We excluded some auto parts under HS Code 8708 because we could not isolate them from the larger category using the available trade data.

Answer to the previous trivia question: In 2012, the New West Partnership Trade Agreement was signed by the premiers of Alberta, British Columbia, and Saskatchewan.

Today’s trivia question: When did Manitoba join the New West Partnership Trade Agreement?