The threat of tariffs on Canada and Mexico could have lasting impacts on manufacturing
President Donald Trump has said it — tariffs are coming.
Local manufacturers are both pleased and worried about the news, as it could increase productivity and jobs within the United States, but it also could begin a trade war with the country’s largest trading partner.
Trump has said that he plans to impose a 25% tariff tax on all goods coming into the United States from Canada and Mexico, possibly as early as Feb. 1.
Nearly $2.7 billion worth of goods and services cross the border each day, and Canada is the top export destination for 36 U.S. states.
According to Jezree Friend, vice president for the Manufacturer & Business Association in Erie, many of the organization’s partners and members have “mixed” feelings about the tariffs. It all depends what kind of business they are in exactly.
“There are going to be some manufacturers in the U.S. that are going to benefit greatly from a giant tariff increase on Canada and Mexico,” Friend said. “What is going to happen is U.S. manufacturers that have competition in Canada, are going to look like a better option. They will have better shipping times and lower prices. They will drive up sales and boost the American economy.”
That is what may happen right from the get go. However, Friend said that could be short-lived, as domestic manufactures may attempt to increase profits from the influx of business.
“If they are not competing as much globally, what is stopping them from jumping their prices 20%, which is still better than the 25% tariffs,” Friend said. “Why would they not try to increase their profits? These tariffs could have an inflation side effect as well.”
Ralph Hardt, owner of Belleville International at 330 E. Cunningham St. in Butler, agreed that United States companies will “ride the bandwagon” when it comes to rising material costs for items such as aluminum and steel.
“We will all be in the same boat,” Hardt said. “I’m just going to have to pass those prices on to my customers.”
Hardt said last year Belleville sold about 20% of its finished products to 15 different countries. With a lot of those customers being in Canada, he fears our northern neighbor will impose retaliatory tariffs on our goods entering Canada.
Even as things stand today, Canada already charges a goods and services tax on items entering Canada, and Hardt feels the tariffs will balance the scales when it comes to trading with them.
“Canada and Mexico are very important trading partners,” Hardt said. “If we work together, the North American economy can then compete with the world. We don't want a war here, but we do need to level the playing field.”
Scott Docherty, president of steel building manufacturer CID Associates at 730 Ekastown Road in Sarver, said he is “all for the tariffs” as he hopes they will increase the production of American made steel.
“Steel is what made America great,” Docherty said. “It won us the Civil War, WWI, WWII, and most of that steel was made right here in Pittsburgh.”
Docherty isn’t too worried about price when it comes to building his products, as he has always sourced his materials from right here in the United States.
“First we try to get it in Butler County,” Docherty said. “If we can't buy in Butler County we look in Western Pennsylvania, then Pennsylvania and then America.”
According to Friend, the reality for some manufacturers is that some of the materials they need, might not be found in the United States to begin with, thus must be purchased from Canada.
This will lead to some manufacturers having to make some tough decisions down the line for how they go about their business.
“With that, now you just took an item out of the supply chain for United States manufacturers,” Friend said. “They could be losing whole orders of stuff because something is missing. Or they have to take the 25% hit and now they are losing profits. Maybe they quoted a job knowing the materials cost one price, but now cost 25% more, but they already have signed contracts for a certain price. They are going to take huge hits until they quote jobs and account for that 25% increase.”
Canada is one of the largest aluminum exporters to the United States. The majority of that aluminum goes into the manufacturing industry.
Pittsburgh-based Alcoa, one of the world’s largest producers of aluminum, is facing an “interesting” situation according to Friend.
While the company is based in the United States, they make most of their aluminum in Canada, equating to about 900,000 metric tons per year, or about a third of its entire yearly production.
“The reality for them is as a United States owned company, they would have to pay a 25% tariff on their own goods going back to their own customers just because it is manufactured over a geographic line,” Friend said.
The solution to this problem however can be taken right out of China’s playbook.
“There are workarounds for this,” Friend said. “It would be cheaper for them to ship that 900,000 metric tons of aluminum to somewhere in the European Union and then ship it back to the United States.
“This is something China has been doing through Africa for years to avoid tariffs,” he said.
Friend said one last thing of note on tariffs between the United States and Canada citing potential hits to the American logistics industry.
Railroads and trucks deliver goods to and from Canada on a daily basis. If tariffs were to be implemented, it would discourage sourcing from Canada, thus giving logistics companies less business due to less goods crossing the border.
There are a lot moving pieces to this subject Friend said and a lot of it still has to play out over the coming months.
Trump has taken strong stances on subjects in the past, which Friend said he thinks is just part of his MO.
“Trump will take some crazy position and people will say it’s crazy then everyone loses their minds,” Friend said. “It has always been a bargaining position, then he draws it back and it’s like an 8% tariff instead of 25%. It’s a power move and negotiating tactic.”
Friend said the Manufacturer & Business Association exists to help educate its partners and members on situations like this and the organization does not want to take an “official” stance on it one way or another.
“Some of our members are happy for this, some are not,” Friend said. “We just want to let everyone know what is going on so they can make the best decisions for themselves.”
