Industry, economists weigh in on lifting of tariffs on Canadian steel, aluminum

TORONTO — The lifting of U.S. tariffs on imported steel and aluminum from Canada received a positive but guarded welcome from industry, which hoped it could lead to a speedy ratification of the pending U.S.-Mexico-Canada agreement.

But the agreement by the two countries to work together to prevent cheap imports of the metals from entering North America prompted one group to call for stronger measures to protect Canadian steel.

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"We're in a better position today than we were yesterday, but I would say that ... we're not completely out of the woods," said Mark Warner, a Canadian and American trade lawyer.

The lifting of a 25 per cent tariff on steel and a 10 per cent tariff on aluminum from Canada by the U.S. Trump administration will take place within two days of Friday's announcement.

But "the devil's in the details," said Warner.

The U.S. and Canada said in a joint statement that they would work to prevent cheap imports of both products from entering North America — a provision appearing to target China. The Asian country has long been accused of flooding world markets with subsidized metal, driving down world prices and hurting U.S. producers.

America can reimpose the tariffs if there's a surge of the products beyond historical norms.

The United Steelworkers' national director Ken Neumann called the removal "good news" in a statement but called for stronger measures to protect Canadian steel.

"Our steel sector and our workers are still at risk from predatory practices of foreign producers who flout fair trade rules and who are now shut out of other markets," he said. "It is critical that the federal government impose measures to stabilize our market and defend Canada's steel sector from these destructive practices."

The organization, which represents 1.2 million workers and retirees in the U.S., Canada and the Caribbean, is waiting to learn more details and "determine the merits and efficacy of monitoring mechanisms intended to address potential surges of steel dumping from countries including China, Turkey and India.

The Canadian Labour Congress said it continues to support "careful monitoring and robust anti-dumping measures to counter trade diversion."

President Hassan Yussuff said in a statement that the dispute resolution "is a reminder of the importance of Canada maintaining a strong trade remedy system and vigilance against unfair competition so that dumped and subsidized steel from China and elsewhere are not directed through the Canadian economy."

Until we see how those rules are going to be interpreted and enforced, said Warner, we won't know exactly the impact — though it'll like take some time for investment to pour back into the sector.

"I think that there's still going to be a chilling effect on investment."

Canadian exporters will face new complexity because of the need to track the origins of the steel and aluminum they use — a measure to prevent foreign metal from flowing through Canada to the United States, wrote CIBC Capital Markets analysts Benjamin Tal and Katherine Judge in a note.

The chief executive of the Canadian Manufacturers and Exporters Association acknowledged in an interview that the new deal will cause additional complexity but said it's an acceptable price to get rid of the U.S. tariffs and Canada's retaliatory tariffs.

"Because all of those were bad for Canadian businesses (and) bad for U.S. businesses. So we're very pleased they were able to reach an agreement," said Dennis Darby, CME's president and CEO.

"While there'll be some challenges...in the long term it will be a better outcome for Canada and for North America."

Darby added that the CME is hopeful that removing the tariffs will pave the way to implementing the USMCA that "many of us worked very long and hard on."

The Aluminum Association of Canada echoed that hope.

The group's president Jean Simard said in a statement that the decision enables the full realization of the potential of the new trilateral agreement.

"It's time to turn the page and redouble our efforts to ensure the full development of the North-American aluminum value chain," he said, adding Canadian politicians should unanimously support ratifying the agreement before the House adjourns next month.

The Canadian Vehicle Manufacturers' Association said it is hopeful the decision will encourage continued progress toward the agreement.

"Resolving this trade issue is very important to the competitiveness of the Canadian automotive manufacturing industry and its suppliers," said president Mark Nantais in a statement.

Shares of Ontario-based Stelco Holdings Inc. got a boost in response to news of the agreement.

The Canadian steel producer's shares surged to $17.66 Friday before closing at $17.09, up 11.55 per cent from Thursday's closing price.

“We have a tremendous amount of praise, really, for this government,” said Alan Kestenbaum, executive chairman of Stelco. “From the beginning, since this happened they put on the retaliatory tariffs, they took a firm position, and they enabled us to thrive in this market.”

Companies in this story: (TSX:STLC)

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