'The impacts are massive': U.S. tariff change pushes Canadian manufacturers to the brink
Canadians manufacturers of products ranging from sport and all-terrain vehicles to tools and moulds to transport trailers could be forced to curtail production after a tariff change imposed by the United States dramatically increased the cost of exporting their products.
The plight of Quebec-based Sea-Doo maker BRP Inc. , which announced this week that its tariff costs would shoot up by more than $500 million this year, drew attention to the little noticed change that went into effect April 6.
“The size of the cost impact fundamentally changes the profitability profile for BRP and injects a high degree of uncertainty into the outlook,” Cameron Doerksen, an analyst at National Bank Financial, wrote in a note to clients, slashing his target price for BRP stock to $80 from $125. BRP’s shares finished the week down 24 per cent after the company’s announcement, which included suspending its financial guidance for the year.
The U.S. modification to an earlier tariff on Canadian steel and aluminum means the entire value of products made primarily of those metals are now subject to the levies, rather than just the value of the steel and aluminum parts. While the levy is lower — 25 per cent instead of 50 per cent — it is calculated on the total value of the product, which means the exports cost substantially more.
The change casts doubt on the viability of hundreds of millions of dollars in revenue for exporters of transportation equipment such as trailers, said Jean-Marc Picard, general Manager of the Canadian Transportation Equipment Association.
“The impacts are massive. The latest tariffs are basically preventing some large Canadian companies from shipping (and) selling to the U.S. going forward,” he said. “Orders are being cancelled and production is curtailed in some cases and jobs are impacted.”
Picard said some manufacturers are continuing to ship to U.S. because of contract obligations, but their profits will disappear.
“The trailer manufacturers are impacted the most and then you have all the suppliers impacted as well,” he said, adding that this pushes the revenue at risk far higher than the $500 million he estimates for the manufacturers in his association. “Axles, suspensions, lights, metals … the list is long.”
Picard said there doesn’t appear to be an appetite in Ottawa to impose reciprocal tariffs, so U.S.-made trailers continue to ship freely to Canada.
“They ship over $1 billion in van trailers per year,” he said. “Not only we are unable to ship to U.S. because the numbers don’t work but the U.S. is also eating our lunch in Canada. This has to stop.”
Dennis Darby, chief executive of Canadian Manufacturers and Exporters (CME), said hundreds of companies across Canada are affected, and the new tariff regime is hardest on the small and medium-sized businesses in his association, which rely on U.S. buyers and have little recourse.
Some companies may qualify for federal government programs set up to support large steel and aluminum companies hit by tariffs, he said, adding that his organization is lobbying to ensure aid remains in place and that the latest escalation is addressed in upcoming Canada-U.S.-Mexico Agreement negotiations.
If that doesn’t happen, manufacturers may have no choice but to relocate production to the U.S., he said.
“We polled our members even six months ago, and somewhere in the range of 40 per cent were at least looking at what it would take to … move some production to the U.S.,” he said. “I think that if this persists, if we aren’t able to provide some clarity or hope to Canadian companies through the CUSMA negotiation … you will, over time, see companies pivoting their production where they can to the U.S.”
Darby said many affected companies, which stretch from British Columbia to Nova Scotia, were reluctant to go public with their concerns, at least for now. But BRP is a member and the calls his organization has received from hundreds of other businesses suggests the latest tariff jolt will eat into revenue and profits, hamper investment and hurt productivity.
“What’s happened is people are sitting on their hands because of the uncertainty, and that’s what continues right now. That’s the worst of all worlds,” he said.
William Pellerin, a partner in the international trade group at McMillan LLP, said companies that are affected by the latest change — including tool and mould makers and manufacturers of tractor trailers and ATVs — cannot seek protection via CUSMA exemptions because they don’t apply to steel derivative tariffs imposed by the United States.
“ Other than taking on a ton more debt, there is not much these companies can do, or that government can do, other than attempt to negotiate away these U.S. tariffs,” he said.
“ Absent some negotiated outcome, the result is likely to be that many of these companies will relocate operations to the United States or retrench operations and lay off workers.”
Pellerin said the latest change marks a significant escalation in the trade war, and is extremely painful for Canadian manufacturers.
“We have seen Canadian manufacturers make the difficult decision to cease all exports to the United States – sales are drying up,” he said.
• Email: bshecter@nationalpost.com