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Canadian Industry Warns of Dire Times Amid Tariffs

Canadian Industry Warns of Dire Times Amid Tariffs

Steel, metal producers say U.S. tariffs have driven down sales, pose threat to cash flow

By Paul Vieira and Kim Mackrael
June 26, 2018 – Wall Street Journal

OTTAWA—Canadian steel producers told lawmakers Tuesday they are already facing lower sales because of U.S. tariffs and warned of more problems ahead should Ottawa escalate its trade row with the U.S.

Retaliation from Canada could exacerbate matters, business leaders warned lawmakers in a specially convened gathering of the legislature’s trade committee. They testified that U.S. tariffs on Canadian autos—as President Donald Trump has threatened—could bring a wide swath of Canadian factories to a stand still.

Canada is America’s top foreign supplier of steel and aluminum, and research from the Toronto-based C.D. Howe Institute indicates the country could face the largest negative impact from the U.S. tariffs, with up to 6,000 jobs lost.

An official from Ontario-based Janco Steel Ltd. said sales to the U.S. plummeted by 60% in June from earlier months after U.S. steel tariffs were imposed on June 1. Stephen Young, the company’s marketing manager, said many U.S. customers were unwilling to place orders or engage in long-term deals.

Janco also is facing cash flow problems because it must pay its customs broker within five to six business days to cover the cost of tariffs, but won’t get paid by customers for at least 50 days, Mr. Young said. He said the firm has frozen all hiring and may have to lay off employees.

“If these tariffs remain in effect for much longer, our current business model simply does not work,” Mr. Young said.

Canada is set on July 1 to retaliate with a set of tariffs of its own, targeting U.S. metals and a range of other imports, including several that are aimed at putting pressure on members of Congress from key U.S. states.

For example, Canada’s plan to put tariffs on whiskey is expected to hit Bourbon exports from Kentucky, home to Senate Majority Leader Mitch McConnell, a Republican. Another tariff on frozen pizza goes after Wisconsin, home to Republican House Speaker Paul Ryan. A final list of targeted items is due in the coming days.

The hardball tactics might compound Canada’s pain, lawmakers were told. The head of a metal processing company said he might have to shut down the 250-employee company his father founded, as Canadian tariffs would markedly raise the cost of the U.S. specialty steel he must import to make products he sells for power generators and aerospace companies.

“I am preparing for the worst and it’s not a good thing. I need help now,” Robert Dimitrieff, president of Patriot Forge Co., told lawmakers.

The pleas for help and warnings of repercussions have exposed the delicate balancing act Canadian officials are trying to tread in both countering the U.S. tariffs and reigniting talks on a revamped North American Free Trade Agreement. Those negotiations have stalled over rules governing content in North America-made cars and a U.S. demand for a so-called sunset clause, under which Nafta would expire in five years unless explicitly renewed by its members.

The starkest warning during testimony before lawmakers dealt with Mr. Trump’s threat to impose tariffs on Canadian-made vehicles and auto parts. Under such a scenario, Canada could face a “carmageddon,” said Flavio Volpe, head of the Automotive Parts Manufacturers’ Association. He warned the Canadian auto sector “would grind to an immediate halt” with U.S. tariffs, as Canadian-assembled cars would be “immediately unsellable.”

Other business lobbyists urged the Liberal government to redouble efforts on seeking a revised Nafta that addresses U.S. concerns. Matthew Wilson, a senior executive with the Canadian Manufacturers and Exporters, a lobby group, said a flawed Nafta agreement would be preferable to rising trade tensions with Canada’s biggest trading partner.

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