As Trump Tariffs Set In, Canadian Steelmaker Scrambles to Adjust

(Bloomberg) -- U.S. President Donald Trump’s tariffs on steel shipments from its northern neighbor hit at least one producer immediately. Now it’s just trying to keep its products flowing south.

Edmonton-based AltaSteel, which makes products for the mining, construction and automotive industries, had 5,000 tons of freight on a rail car headed to the U.S. when Trump made the announcement on tariffs in late May. Uncertain of how customs brokers would deal with the shipment and how the company’s customers would respond, AltaSteel President Jon Hobbs ordered the shipment halted and returned to Edmonton. The move cost the company C$100,000 ($75,000).

“It was a big shock,” Hobbs said of the tariff announcement. “We’ve always seen the U.S. as that champion of free trade, the model of how one should behave commercially.’’

While AltaSteel could absorb the loss -- the shipment accounted for less than 2 percent of the 300,000 tons of product the company churns out in a year -- the tariffs have shaken up the company. Like many observers, Hobbs is hoping that the tariffs are a short-lived tactic in the North American Free Trade Agreement negotiations. But he’s also preparing for how to protect his company, which ships 20 percent of its output to the U.S., if the trade war turns out to be a protracted fight.

Customer Relations

AltaSteel joins international giants such as ArcelorMittal’s Dofasco unit in Hamilton, Ontario in facing a 25 percent tariff on products that cross the U.S. border. The industry employs 23,000 people, including about 360 people at AltaSteel, and had output of about C$15 billion last year, according to the Canadian Steel Producers Association.

The immediate priority for AltaSteel has been working with its customers, some of whom have decades-long relationships with the company, to assure them that shipments of the products they need will keep flowing, Hobbs said. And the customers have agreed to pay the tariffs, at least for now.

But Hobbs fears that if the levies last for nine months, his products could become uncompetitive for U.S. buyers. In that case, he’d be forced to try to sell more to other markets, including domestically. AltaSteel right now gets about 10 percent of its sales from Mexico, with the remainder from Canada. The company has previously sold into South America as well, but doesn’t have any customers there at the moment.

Hobbs applauded Canada’s response, which includes levies on as much as C$16.6 billion of U.S. imports that go into effect on July 1, including a 25 percent tariff on steel. Yet Hobbs wants a return to a level playing field, with zero tariffs in either direction.

“To send a signal to the U.S. that trade is not a one-way street, trade is a two-way street, is very important,” Hobbs said. “To give them a reason to pause and think about the longer-term consequences of what they’re doing is very important.’’

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With Business News News On BloombergQuint