Canadian Business: Economic Effects of US Tariffs on Key Industries

This report analyzes the impact of US tariffs on Canadian businesses, focusing on the steel and lumber industries, as well as the Bombardier C Series aircraft. It examines the Canadian government's response to tariffs imposed by the Trump administration, including retaliatory measures. The report details the economic consequences of these tariffs, such as increased costs for consumers, potential job losses, and reduced exports. It further explores the softwood lumber dispute and the Bombardier case, including the legal battles and the impact on the companies involved. The analysis considers the effects on various provinces, particularly Ontario and Quebec, and the implications for the Canadian economy, including GDP reduction. The report highlights the complexities of trade disputes and the importance of international agreements like NAFTA, as well as the role of government subsidies and the impact on innovation and competition.

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Canadian Business
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The Canadian administration responded to Trump's government decision to impose tariffs
on steel and aluminium by imposing retaliatory tariffs estimated to be worth $16 billion of
American imports (Marowits, 2018). The list entailed a 25% surtax on partial-finished
commodities with the inclusion of steel products and a 10% tariff of consumer commodities with
the addition of coffee and orange juice. It is estimated that more than $16.6 billion worth of
yearly duties account for approximately 6% of the $294 billion of the gross value of
commodities imported from the U.S (Rocha, 2018). This 10% rate on goods and services
accounts for 70% of products impacted by tariffs.
Steel and aluminium industry
Canada got a slap from the U.S following the hefty tariffs imposed on steel and
aluminium industry, an action that will see residents of Canada pay more for items such as cars,
beer and refrigerator among other items. The 25% tariff on steel and 10% on aluminium is a
thorn to the Canadian economy as it will cost it approximately $3.2 billion a year (Dangerfield,
2018). This is because Canada has been ranked as the leading supplier of steel and aluminium to
the United States. Canada exports more than 90% of its steel and the U.S. which is more than
what is shipped by other countries based on data from the Association of Canadian Steel
Producers. The advantages of free trade are scrapped in the late dealing between Canada and the
U.S. as this will see the price of steel and aluminium rise leading to loss of jobs. The American
policy has held the Canadian economy captive. Trump's administration initially initiated tariffs
after president Trump announced that the U.S was being mistreated. He confirmed that taxes on
imports would help protect American employment opportunities while at the same time boost the
economy. U.S. security interests were also cited by the Trump administration aiming to

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implement the tariffs, stressing that the military needs a national domestic supply for its ships
and tanks.
Despite announcements that Canada, Mexico and EU that they were accorded a
temporary exemption from the announced tariffs, the offer was to expire in a few days.
It is estimated that half of Canada’s steel produced is exported majorly to the U.S. and with the
25% tariff imposed, it is evident that the demand for Canadian steel from the U.S will fall
dramatically. There is a need for people working in the Canadian steel industry to worry as they
export and import a lot to the U.S. Thus, there will be job cuts since the U.S. market will be
experiencing job losses which will affect Canada. Only five provinces are responsible for
producing steel in Canada employing more than 20000 individuals with Ontario being the centre
where production is mainly concentrated.
According to the Association of Canadian Steel Producers, three cities that are Sault
Ste.Marie, Ont., Hamilton, Ont., and Sorel-Tracy, Que., in Canada are heavily reliant on the steel
industry. A city such as Hamilton has been dubbed as the Steel city has approximately a
population of about 10000 people employed in the steel industry. It has also been stated that it
produces roughly about a third of the entire Canadian steel that is exported to the United States.
This is crucial to the Canadian economy as it accounts for $2 billion in Canadian procurement
and this translates to more than 30,000 jobs being dependent on the steel industry in Hamilton.
Aluminium Association of Canada reports that approximately 80% of the 3 million tons of
Canadian aluminium is exported to the U.S. annually and this accounts for two-thirds of U.S
gross aluminium imports (Evans, 2018). The Canadian aluminium sector carries with it more
than 8300 jobs with a majority of jobs being concentrated in Quebec. One of the consulting firms

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in the aluminium industry, Harbor, had cited possibilities that import duties would make the
price of machinery, cars and appliances to rise.
Based on a report by Peterson Institute for International Economics (PIIE) an institution
located in Washington U.S., it revealed steel and aluminium industries in Canada would lose
approximately $3.2 billion every year if such tariffs were imposed in exports lost to the United
States. This was immense and one of the biggest hits that could be shouldered by any country as
it is close to five times as much as more than the $600 million that China would yield under such
tariffs. More than $24 billion worth of Canadian steel and aluminium was exported to the U.S. in
2017 with most of the steel and aluminium originating from Ontario and Quebec (Dangerfield,
2018).Some of the pundits from the Financial department postulate that even though Canada was
anticipated to lose around $3.2 billion annually from the imposed taxes on steel and aluminium,
Canadian economy would experience minimal impact on the GDP. Analysts indicate that tariffs
would initiate a GDP reduction of about 0.2-0.3% (Dangerfield, 2018).
Softwood Lumber
Tariffs on Canadian softwood lumber by Trumps administration seem to be driving the
cost of wood based on claims by association of home builders which leads to $9000 increase in
the value of single-family in the U.S (Dattu, Glossop, & Xu, 2017). The 20% tariffs on Canadian
lumber implemented at the end of last year has led to $3000 increase in the average price of a
multi-family unit. The lumber prices are rising, and the issue is exacerbated by tariffs imposed
on the Canadian imports with regards to the Canadian softwood. Secretary Ross expressed her
mutual concern with regards to the rising prices of lumber reported to be higher than the
anticipated tariff rate as it is already hurting the affordability of houses in markets spread across
the U.S.

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The imports from Canadian lumber are ranked as the largest supplier to the U.S. market
for softwood lumber yearly as it accounts for 28 per cent of the sales in the U.S. annually over
the past few years (Dattu, Glossop, & Xu, 2017). The price increases are bad news mainly for
first-time buyers. Despite the supply of new homes auctioned for sale in 2013, much of the
supply has been enormously entailing exorbitant properties. With the increase in the construction
of new homes, cost pressures associated with the shortage of labour, surging prices for materials
and regulations will impede the development of smaller homes (Vomiero, 2018). In the first
quarter of 2017, the likelihood of tariffs on Canadian lumber was just a threat out of the ladder.
However, predictions regarding such a trade action had been cited and that it could add more
than $1200 to the price of one family home.
There has been an ongoing battle that has lasted for decades between the U.S. and
Canada regarding whether the government of Canada should provide subsidies for its producers
enabling them to sell to consumers in the U.S. market at below-market prices. Before Canada’s
expiry of the most recent legal tiff towards the end of 2015, the deal carved out anti-dumping and
countervailing duties from softwood lumber imports from Canada (Dattu, Glossop, & Xu, 2017).
Such a deal conditioned the U.S. producers to file a portion of the revenue they had accrued
previously, and this led to Canadian producers ascribing to specific quotas when selling to the
U.S.
The announcement by the department of commerce in 2017 about imposing preliminary
countervailing tariffs on the already alleged subsidized Canadian softwood imports saw rates
going up to 24% (Dattu, Glossop, & Xu, 2017). According to the U.S., the duties will be applied
based upon identification of the relative amount of subsidy given by provincial governments and
the Western Canada companies will be subjected to the highest taxes of about 20%. This has

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been identified as the fifth subsidy battle between Canada and the U.S. regarding softwood
lumber. However, over the past decades, Canada won the previous fought battles successfully
using the appeals to panels recognized under North American Free Trade Agreement (NAFTA)
and the World Trade Organization (WTO). the Canadian federal with the help of both the
provincial governments and the Canadian lumber industry settled arising disputes through
consenting to a voluntary export limit agreement that is administered by the government of
Canada or export taxes to facilitate predictability and accessibility of the U.S market.
The softwood lumber dispute alleged that the provided subsidies by some provincial
governments and many jobs were at risk in rural areas. Also, the forest industry in a place like
Quebec accounted for more than 50,000 jobs affecting 180 businesses as lumber exports to the
U.S. are crucial to the timber industry. The tax was unjust and unreasonable based on Canadian
officials.
Bombardier
In January 2018, Bombardier won its battle against the 300% tariffs applied to the U.S.
imports of its C series model. According to the International Trade Commission in the U.S.
revealed that 100-150 seat long civil aircraft from the Canadian market does not harm the U. S
aviation industry (Muschi, 2018). Boeing had launched complains that it was at risk of
experiencing harm from Bombardier planes despite aircraft designed for U.S. clients being slated
to be manufactured from a new assembly line close to the Airbus facility in Ala.
Bombardier, a Montreal-based company, was anticipated to win support and approval
from three of the four commissioners so that it could put an end to the punitive tariffs imposed
on its C series aircraft and the decision was to be unanimous. The decision was a victory for both
Canada and Bombardier and put some wind in the sails particularly for the ongoing NAFTA

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negotiations. It was a stunning victory for Bombardier based on the comments by Trumps
administration and other officials. Looking at it from the industry perspective, it appears to be
the best decision based on the fact that Boeing was unhurt by the C Series and Delta’s decision to
purchase it (Muschi, 2018). This was precisely in the case of Airbus taking over the management
of C Series and establishing premises in Alabama. Boeing had initiated a lawsuit indicating how
the government in countries such as Canada and Britain subsidized the development of
Bombardier planes enabling it to sell the aircraft at unfair low market prices. Following the
lawsuit, the Department of Commerce enacted anti-dumping and countervailing tariffs that
amounted to more than 290%.
The only U.S. customer, Delta Air Lines Inc, was initially anticipated to receive its first
firm order for more than 70 CS100 planes over the spring. However, the plans were halted till
assembling of the aircraft was to be done in the U.S. Bombardier anticipated that Boeing would
possibly respond by filing a new lawsuit following a new U.S. order for the C Series since it did
not believe that the Alabama line would be constructed (Muschi, 2018). According to
Bombardier, the threat of a new lawsuit by Boeing translated to having its partnership with
Airbus to build and establish a complete assembly line compulsory irrespective of how the case
got resolved. Despite Boeing’s ability to employ legal wrangling to discourage sales of the C
series, the global giant will be satisfied to have the lion’s share of the marketplace.
The unanimous decision by the panel was a victory to allow room for innovation,
competition and the rule of law. Such a judgment was rendered following thorough scrutiny and
seeing through Boeing’s games as Boeing’s aircraft cannot compete in the same sector as the C
Series. The C series is a reflection of efficiency and innovation though Bombardier needs to go

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further to establish a strategic partnership with a giant company such as Airbus. Following the
removal of the tariffs, Bombardier stands a better chance of securing sales of the aircraft.
UK prime minister Teresa May has attempted to speak to president Trump to give support to the
case of Bombardier (Muschi, 2018). This was due to the fact most parts of the plane were
manufactured in Northern Ireland. It is after the announcement of imposing tariffs that several
members of Teresa’s cabinet blamed Boeing and this went further to threatening Boeing’s future
in supplying the British military. It is hilarious however that Bombardier lacks vertical
integration. The company purchases a substantial percentage of the C Series components from
American-based companies that manufacture such parts in America using American employees.
Demand and supply
With tariffs in place, demand and supply of steel and aluminium will be affected for both
the U.S. and Canada. Trump aims to use taxes to facilitate the manufacture of more steel and
aluminium to be made in the U.S. Trump also wants U.S. based firms to buy domestic steel and
aluminium instead of purchasing different alternatives. However, this will present a big problem
since America is incapable of supplying both steel and aluminium to feed its insatiable demand.
Based on government data, the U.S. imports close to 37 million metric tones in 2017 (EDC,
2018). One-six of this steel is from Canada; when it comes to aluminium, Canada is a larger cog
as it contributes more than half of the five million metric tones consumed by the U.S. annually.
Even though White House cited that its moves would be of advantage to U.S consumers and
create employment opportunities, the possible impact is that it is going to raise prices. Steel and
aluminium prices will eventually go up as competitors will be obliged to hike their rates by 25%
making other U.S. firms to raise their prices and keep the difference possibly. In the short term,
American prices will rise while Canadian supply will fall.

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Cost
Payment of tariffs on elements of the commodities made and sold makes companies
increase the price of their commodities to capture the high input cost. Canadian-imposed tariffs
impact negatively on the value of inputs particularly when Canada is effectuating tariffs on
several products coming from the U.S (EDC, 2018). Some of the items subjected under a 10%
tariff such as the aluminium wire. Purchasing aluminium wire from the U.S. for jewellery-
making enterprises will make buyers pay a 10% more for such materials. It is the tariffs imposed
on Canadian products that make commodities more expensive for customers.
Competition
The case of Bombardier and Boeing is a perfect example of how tariffs could impact
competition. In the event the 300% tariff was successful, this could mean that the cost of
production for Bombardier would be higher than Boeing’s and this would mean more sales for
Boeing and fewer sales for Bombardier aircraft. Thus, tariffs always have the effect of making
one company less competitive than the other leading to a sales increase in one company while
the other experiences a decline in its sales.
Conclusion
It is apparent that the tariffs imposed by the U.S. on Canadian industries such as steel,
aluminium and aircraft manufacturing may have well-intentioned purposes though such tariffs
may have devastating impacts for both countries. For instance, in the U.S., the cost of building
unit houses has gone up following the imposition of tariffs on timber imports from Canada. The
10% and 20% tariffs on aluminium and steel from the Canadian market already has made the
cost for steel and aluminium from Canada expensive as the consumers are already complaining

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about the effect of such tariffs. The jobs for many individuals are also at stake due to the
increased cost of production following tariffs being imposed on such commodities.

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References
Dangerfield, K. (2018, June 2). What U.S. steel, aluminum tariffs mean for Canadians — and
their wallets. Retrieved from Global News:
https://globalnews.ca/news/4244395/aluminum-steel-tariffs-canadians/
Dattu, R., Glossop, P., & Xu, C. (2017, April 28). International trade brief: The impact of
softwood lumber tariffs on Canadian companies. Retrieved from Osler:
https://www.osler.com/en/resources/cross-border/2017/international-trade-brief-the-
impact-of-softwood
EDC. (2018, June 28). Tariffs 101: How tariffs work and what it means for your business.
Retrieved from Trade Regulations: https://www.edc.ca/en/article/how-tariffs-work-for-
business.html
Evans, P. (2018, June 1). Now what? How steel and aluminum tariffs will impact Canada.
Retrieved from CBC News: https://www.cbc.ca/news/business/trump-steel-aluminum-
tariffs-1.4685993
Marowits, R. (2018, June 29). How will tariffs affect Canada? 9 things to know. Retrieved from
ctv news: https://www.ctvnews.ca/business/how-will-tariffs-affect-canada-9-things-to-
know-1.3994830
Muschi, C. (2018, January 26). Bombardier wins bid to overturn 292% tariffs at U.S. trade body.
Retrieved from CBC News: https://www.cbc.ca/news/business/bombardier-boeing-
tariffs-1.4505114
Rocha, R. (2018, July 2). These are the places most vulnerable to U.S. tariffs. Retrieved from
Cbc news: https://www.cbc.ca/news/canada/tariff-impact-canadian-cities-1.4728226

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Vomiero, J. (2018, June 24). Trump’s tariffs on Canadian lumber are pricing Americans out of
the U.S. housing market. Retrieved from Global News:
https://globalnews.ca/news/4293847/tariffs-lumber-pricing-americans-out-of-housing-
market-trump/