The Real Impact of Trump’s Steel Tariffs

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U.S. President Donald Trump listens to questions from the media as he meets with Colombia's President Juan Manuel Santos (not pictured) in the Oval Office in Washington, DC, U.S., May 18, 2017. REUTERS/Kevin Lamarque
U.S. President Donald Trump listens to questions from the media as he meets with Colombia's President Juan Manuel Santos (not pictured) in the Oval Office in Washington, DC, U.S., May 18, 2017. REUTERS/Kevin Lamarque

WASHINGTON – OPINION – While Ronald Reagan was known as the ‘Great Communicator’, Donald Trump may well go down in history as the ‘Great (or not so, depending on who you talk to) Disruptor’.  For Canadians, the impact of Trump’s bravado can be felt when it comes to trade as the American President has not only threatened to blow up the North American Free Trade Agreement (NAFTA), but he has also been busy levying tariffs on aluminum and steel products. This should worry everyone in Canada, as the nation’s economy is highly tied to its unique trading relationship with the U.S. As such, any barriers can have a ripple across the economy.

However, what are the real issues and what can be done to make sure that the livelihoods of average Canadians do not become a casualty of the whims of the American president.

Why Tariffs Matter

When it comes to trade, the Canadian-U.S. border is the busiest in the world and this has brought growth and stability to the denizens on both sides of the border.  Sure, Canadians shouldn’t forget that the U.S. unsuccessfully tried to invade our country but the overall relationship between our two nations has been cordial for close to 200-years.

However, protectionist moves by ‘leaders’ in Washington could change that as the economic hostility could lead to other issues. These could include exchange rate issues between the Looney and the Greenback as well as counter tariffs on a slew of products Canadians use every day.

Another potential issue would be the increased complexities in goods which move back and forth across the border during the manufacturing process.  This can be seen in the manufacturing clusters around Hamilton and Detroit or along the St. Lawrence River.  These clusters provide opportunities for thousands of Canadian and American small businesses, including Steel Pro in Michigan.

Beyond this, the antagonism could lead to other issues, such as potential conflicts in the Arctic or in the fishing beds of the North Atlantic. As such, the tariffs could be a signal of a change in the course of the relationship between our nations and this has the potential to undo 200-years of amity and commerce.

However, it is not a done deal as the American President has granted Canada a temporary waiver – as long as the result of ongoing NAFTA negotiations please Mr. Trump.

How Can You Protect Your Business?

While Canadians are potential victims of Trump’s decision to undermine cross-border trade, they don’t need to be powerless.  For small businesses who sell to customers in the U.S., the key is to stay ahead of the tariffs by tracking what is in the pipeline and even setting up 3PL (third party logistics) solutions in the U.S. prior to the enactment of further punitive measures.

For companies in the aluminum and steel industry – especially those around Hamilton – the first step is to work with suppliers and customers to identify the true cost of these measures and figuring out what can be done to offset the impact.

While shifting production bases is an option, the reality is that new steel or aluminum factories require massive capital investment and most take two-to-three years to come online – and that is assuming they already have the prerequisite environmental approvals.

As such, the only way to overcome these complexities is to work closely with suppliers and customers to identify other opportunities for efficiency within the supply chain.  This can include co-locating inventory or even looking at how material requirements can be re-engineered to reduce overall production costs.

This is a must do for Canadian businesses.  In Hamilton alone, more than 10,000 people are directly employed in the steel industry.  A potential worst-case scenario is that Hamilton becomes ground zero for Trump’s tariffs, though this could just be the beginning.

One reason why Hamilton is so impacted by the tariffs is that steel and aluminum manufacturers in this region are key suppliers to auto manufacturers on both sides of the border.

This has the attention of politicians in Ottawa and Toronto.  While Prime Minister Trudeau has tried to put a brave face on the threatened tariffs and the tenuous status of NAFTA negotiations, the reality is that federal and provincial leaders are still working on a package of appropriate measures to help lessen the blow.

Thankfully tariffs are only a threat at this point but in the whirlwind Washington of Donald Trump that could change with a tweet.  As such, Canadians need to prepare for the worst and hope for the best.

What can you do to protect your business? Work with suppliers and customers to have alternatives in place as this will lessen the blow if and when Trump’s tariffs become a reality.