Canadian manufacturers who previously thought they avoided tariffs are now scrambling to figure out which of their goods will be affected at the U.S. border.Chris Young/The Canadian Press
Canadian manufacturers are scrambling to manage a sudden expansion in the number of products hit by the United States’ hefty tariffs on steel and aluminum.
Last Friday, the U.S. Department of Commerce added 407 new categories to the list of products that are subject to 50-per-cent metal tariffs. These include a broad range of “derivative” products, ranging from packaging materials to household appliances and large machinery.
The move, done at the request of American companies looking to be folded into U.S. President Donald Trump’s protectionist regime, significantly expands the scope of the sectoral tariffs imposed under Section 232 of the Trade Expansion Act of 1962.
That means many Canadian manufacturers who previously thought they’d dodged tariffs are now clambering to figure out which of their goods – and what percentage of a given product – will be dinged at the border.
“When you think about the 232 tariffs on steel and aluminum, people think of big plants with smoke coming out and blast furnaces churning out plates or coils,” said Ted Murphy, co-leader of the global arbitration, trade and advocacy practice at U.S. law firm Sidley Austin LLP.
What the latest changes show, he said, is this “is really about the industry. So anyone who has anything that contains steel or aluminum is clearly fair game.”
Unlike with Mr. Trump’s broad-based tariff on Canadian goods, there is no exemption from 232 tariffs for goods that comply with the continental free trade agreement. The only exception is auto parts, which have received a carve-out under the 232 tariffs on automobiles.
Carney discusses tariffs, security with Trump over phone
Trade experts had expected the list of derivative products subject to the 232 metal tariffs to expand over time.
Once Mr. Trump had increased the tariff on steel and aluminum to 50 per cent, some U.S. manufacturers found themselves at a competitive disadvantage compared with foreign firms who could source cheaper metal and then ship finished products into the U.S. at a lower tariff rate.
But the breadth of the list, and suddenness of the change – it was announced without warning late last Friday and came into force on Tuesday – caught companies and their trade advisers by surprise.
“The Department of Commerce in the U.S. has been accepting requests for expansion, so anyone who’s in the industry knows that this is going on,” said Dennis Darby, chief executive of the business group Canadian Manufacturers & Exporters.
“But on Friday they just ruled on a whole ton of them, and now everyone’s scrambling to figure out, am I caught? Am I not caught?”
The answer to that question isn’t straightforward, according to Jill Hurley, senior director of global trade consulting at the customs brokerage Livingston International. New products included on the list are only subject to the 50-per-cent tariff for the portion of the good that’s made up of steel and aluminum.
“I have a client right now that imports food products, and now they have to start accounting for the value of aluminum, which might just be part of a bag or a label or something like that,” Ms. Hurley said.
Or, take the example of aerosol cans, she said. “The empty cans were originally caught under the steel tariffs. But now even if they’re filled with products which would have been classified elsewhere – that could be bug spray, hairspray, anything – now they have to account for the value of the steel and pay duties on that.”
These complications have led to a flurry of calls from Canadian companies in recent days looking for guidance and potential tariff mitigation strategies, said Martha Goncalves, a PwC Canada partner who focuses on international trade.
“You really need to look at your bill of materials and make that assessment – what is the percentage of the steel or aluminum that is actually going into my finished product? – so I’m only paying a tariff on that. If you don’t know what that percentage is, you will be paying tariff on the entire finished product,” Ms. Goncalves said.
It’s difficult to quantify exactly what portion of Canadian trade will be affected by the latest changes, Ms. Goncalves said. Each of the new 407 classification numbers may correspond to several different products, she said.
“It could be very broad, sweeping,” she said. “We have an idea of how it’s going to impact industries, but not necessarily the volume of actual products.”
The U.S. move was condemned by the Canadian Steel Producers Association in a statement on Thursday.
“This action is another blow to the integrated economy our two countries have built over the last several decades and will impact the manufacturing of steel-containing products in Canada destined for the United States. These goods include cutlery, propane tanks, heaters, air conditioners, agricultural equipment like tractors, and many more,” said Catherine Cobden, the association’s president and CEO.
She said the federal government should respond by applying a 50-per-cent tariff on all U.S. steel entering Canada and ending a tariff exemption Ottawa introduced earlier in the year to allow U.S. metal used by Canadian manufacturers to dodge Ottawa’s retaliatory tariffs.
Canada’s business community remains divided over retaliation, with other business groups advising restraint to avoid driving up costs for Canadian companies and consumers and antagonizing Mr. Trump.
Jean Simard, CEO of the aluminum association of Canada, took a more positive view of the U.S. move.
“From a primary metal point of view, it’s going to eventually increase the demand for North American primary metal, including from Canada, in replacement of stuff that was made from Chinese metal, and came from a third country under the guise of a consumer product,” Mr. Simard said.
Mr. Murphy, the lawyer with Sidley, said that the list of derivative products covered by 232 tariffs may continue to expand. The Department of Commerce has left open the process by which U.S. companies can petition for inclusion.
“People ask me, are things settled now? No, nothing is,” Mr. Murphy said.
“And this isn’t a design flaw. It’s a feature. Whether they really thought about this or not, uncertainty will cause people to buy domestic. If you don’t know what the tariffs are going to be, if you could buy something three weeks ago and the tariffs could go up in the meantime, you’re going to think twice before you buy internationally.”