The indefinite exemption announced Thursday on the 10 per cent aluminum and 25 per cent steel tariffs is a reprieve, said Aluminium Association of Canada president Jean Simard, but the whole affair has created too many unknowns to attract new investment.
“There’s enough uncertainty to hinder any potential expansion project, because you know, you don’t predicate billions of dollars of investment on expansions when you don’t know what’s hanging out there in the future.”
Getting a permanent exemption is the priority for now, but Simard is also concerned about how the tariffs that apply to all other countries but Mexico will affect users of the products in the U.S. market.
“The U.S. is going to be the most expensive place in the world to buy aluminium, which is not good for anyone.”
Then there are the global repercussions of the U.S. launching a trade war and the potential escalation of industry disruptions, said Simard.
“This will be the first time the global industry goes through a shock like this. So what will be the collateral damages over and above the direct damages, the direct impact? It’s hard to see how the market will adjust, but one thing’s sure, it’s going to destroy some value.”
The uncertainty could disrupt both short-term sales and long-term investments in the steel industry industry as well, said Peter Warrian, a senior research fellow at the University of Toronto’s Munk School of Global Affairs.
“This injects uncertainty. People are used to risk, but now you’ve got uncertainty which is a qualitatively different thing.”
Order cycles in steel are generally about six to eight weeks, but the lack of certainty on the tariff issue complicates those sales, he said.
“You’re trying to talk to someone, and they don’t know what the price of steel is going to be six to eight weeks from now. So there’s a short-term issue.”
The steady flow of orders is important, because the steel producers need to keep at a high production rate to justify running the energy intensive furnaces and machinery, said Warrian.
“If you’re not running at somewhere between 80 and 85 per cent of capacity, you can lose a lot of money in a hurry.”
There’s been uncertainty in the industry ever since Trump initiated the national security-based tariff investigation, so companies will just continue to try and adapt to the changing circumstances, said Canadian Steel Producers Association president Joseph Galimberti.
“Companies have had to be in close contact with their customers throughout the 232 process, and yesterday’s announcement, while it gives some comfort, I don’t think negates the need for our member companies to be in active contact with their customers to be responsive to concerns going forward.”
Galimberti said there’s some comfort in Canada being exempt, especially since at times it didn’t look like it was going to happen, but overall companies are having to get used to the new reality of unpredictability.
“This is just the world now, it just is…even if there is a completed NAFTA, I don’t think we can go back to a place where we’re like things are great, it’s all cool.”