June 2018 | Carlo Dade

Canada suddenly finds itself locking horns with the United States over steel and aluminum.

The first salvo came from the U.S., which as of June 1, enacted tariffs on steel and aluminum imports from Canada, Mexico, and the EU – steel will have a 25% tariff going into the United States, and aluminum will have 10%. With Canada firing back almost immediately with its own tariffs on a range of products set to come into force July 1, and the rhetoric between leaders of both countries ratcheting up, we’re taking a closer look at the steel and aluminum industries in Canada, specifically Western Canada, and how will these tariffs have an impact.

Canadian steel and aluminum industry

The industries have heavy presences in Ontario and Quebec, but they are actually significant in most provinces, and are present in every province and territory. In 2017, Quebec exported the most steel and aluminum combined, at just over $9.8 billion, followed by Ontario at nearly $9 billion. The third largest exporter of steel and aluminum in 2017 was B.C., at $1.7 billion. Alberta exports $333 million and Manitoba exports $207 million; they are the fourth and fifth largest exporters of steel and aluminum in Canada. Saskatchewan’s steel and aluminum industry in 2017 exported more than $91 million.

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Western Canadian exports to the U.S.

Bringing our focus in on Western Canada, the impact of the tariffs becomes more apparent when we look at how much steel and aluminum is exported to the United States.

For the last 10 years, Saskatchewan and, to a lesser extent, Manitoba, have sent nearly all of their iron and steel exports to the United States; these tariffs will be particularly difficult for the industries in these provinces. British Columbia exports less to the U.S., but still sends roughly 75% of its iron and steel exports below the border. Alberta has exported significantly less to the U.S., only exporting 53% of its product to the U.S. in 2017: Alberta also exported significantly to Mexico in 2017 – nearly $42 million worth.

When it comes to aluminum, all of the Prairie provinces export most of their aluminum to the United States; Saskatchewan exports essentially all of its aluminum to the U.S. British Columbia is another story. B.C. has traditionally exported large amounts of aluminum to South Korea and Japan; in recent years it has begun exporting a little over 50% to the U.S.

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Employment in steel and aluminum in Canada

According to Statistics Canada, in March 2018 there was nearly 60,000 people working in primary metal manufacturing (which is mainly aluminum, iron, and steel). In B.C., this were nearly 4,000 employees; in Manitoba, more than 3,600 employees; and in Alberta, close to 3,200 employees. For Saskatchewan, data is not available.

Beyond steel and aluminum

The U.S. tariffs target a wide range of steel and aluminum projects, most of which are traded between Canada and the U.S. Canada supplies one-sixth of the U.S.’s imported steel, and nearly half of its imported aluminum. In the short term – American prices will go up, and Canadian production will go down, slashing the contribution of these industries to Canadian employment and GDP. There is a glimmer of optimism for Canadian steel and aluminum industries, however. Because the U.S. imports so much of the products, and for several reasons, cannot produce all of this supply itself, it will need to continue to import steel and aluminum – which it may continue to import from Canada, but at a higher price than it paid before. In 2002 when the George Bush administration imposed tariffs on steel imported from countries other than Canada and Mexico the U.S. government International Trade Commission estimated that the tariffs resulted in a net US$41 million dollar hit to the U.S. economy.

Meanwhile, Prime Minister Justin Trudeau has outlined $16.6 billion in retaliatory tariffs, to be applied on Canada Day, July 1. The tariffs against the steel and aluminum industries in Canada – and other countries around the world – could be the start of an ugly period of trading relations with our southern neighbour.

Final note

It’s not all bleak on the aluminum front. As soon as Canada ratifies the Comprehensive and Progressive Agreement for Trans-Pacific Partnerships (CPTPP), we’ll be positioned to take market share from the Americans in places where both the U.S. and B.C. are selling, like Japan and Malaysia. The U.S. is not part of the CPTPP. As soon as the agreement comes into effect, Canada will see tariff reductions in these markets, a price advantage that the Americans will not have. If Canada wants to do something about what the Americans have done, we should start taking advantage of opportunities to sell our products elsewhere.

*Trade data does not easily separate steel and iron, as steel is actually a byproduct of iron (a combination of iron and carbon). Therefore, steel and iron data is considered together here.

Carlo Dade is the director of the Trade & Investment Centre and Sarah Pittman is a policy analyst at the Canada West Foundation